October 1st, 2012

GC Capital Ideas Top Stories: September 2012

Posted at 1:00 AM ET

1. Guy Carpenter Explores Opportunities in a Challenging Market At Monte Carlo Rendez-Vous 2012: In its fifth annual press briefing held at the Reinsurance Rendez-Vous 2012 in Monte Carlo, Guy Carpenter addressed the challenging market conditions currently facing the re/insurance industry and highlighted opportunities for growth.

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2. Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness: Prior to the recent turbulence in the financial markets, insurers and reinsurers were increasing their use of enterprise risk management to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.

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3. Guy Carpenter Details Top Risks for (Re)insurance Industry in Mid-Year Market Report: Guy Carpenter released its mid-year market report, which addresses the top risks (re)insurers face as they seek profitable growth. The report, Overcoming Key Risks on the Road to Profitable Growth, provides a detailed analysis of three key risks to the sector: economic uncertainty and emerging interest rate sensitivity, the shifting nature of catastrophe losses and reserving risk.

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4. “Cold Spot” Catastrophe Losses Reveal Potential Emerging Market Risks, According to Guy Carpenter Report: Guy Carpenter published a new report that offers insight into catastrophe risks in developing economies and how they are likely to affect the (re)insurance sector as companies target growth opportunities in these new markets, including emerging Asia and Latin America.

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5. Capital Development at Lloyd’s: The chain of security at Lloyd’s describes the three layers of capital that Lloyd’s uses to pay claims.

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6. Casualty Cat: Revealing Hidden Accumulations in Casualty Portfolios: Casualty risk is inherently complex. Few insurers and reinsurers manage the accumulation risk in their casualty portfolios. The right tools simply have not been available to identify and analyze this unique peril. Innovation is catching up with the dangers that carriers face, though. New solutions are making the prospect of a casualty catastrophe-and the estimation of realistic disaster scenario costs-a bit less daunting.

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7. Making Models More Responsive: The Framework: Many insurance executives will have seen their companies incur high costs preparing for Solvency II, in particular for actuarial staff resources that build internal models. But are they seeing a good return on this investment?

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8. Eurozone Debt Crisis and the “Flight to Quality”: A prominent effect of the global slowdown has been pressure on countries’ tax revenues and difficulty in financing national budgets. The southern European periphery and Ireland have been particularly susceptible to heightened risk premia. While Greece obtained a funding package from the European Union and the International Monetary Fund (IMF) in March, it has been speculated that the likes of Spain and Italy are simply “too big to save” given current central bank and IMF resources in a similar event.

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9. Chart: U.S. Property Catastrophe Rate on Line Index: Based on early calculations at July 1, overall property catastrophe pricing for 2012 as compared to 2011 was up 6.5 percent.

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10. Indexation Clauses in Liability Reinsurance Treaties: A Comparison across Europe: The Indexation Clause - otherwise referred to as the Stability Clause, Inflation Clause, or Severe Inflation Clause (SIC) - is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss (XL) reinsurance treaty over the duration of the claims payout pattern. The clause is only relevant to losses that are of a long-tail nature (i.e., that take a long time to become paid) and is commonly found in the terms and conditions of motor liability (MTPL), general liability (GTPL), and professional liability TPL XL reinsurance contracts of European cedents.

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