October 2nd, 2012

GC Capital Ideas Top Stories: Third Quarter 2012

Posted at 1:00 AM ET

1. 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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2. July 1 Reinsurance Renewals Reveal Plentiful Capacity amid Benign Catastrophe Activity, According to Guy Carpenter: Reinsurance renewals took place against a backdrop of plentiful capacity at July 1, 2012. Capital has continued to strengthen through the second quarter of 2012, moderating pricing pressures, according to a briefing released today by Guy Carpenter & Company.

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3. 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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4. 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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5. Standard & Poor’s Proposed Insurance Rating Criteria Update: On July 9, 2012, Standard & Poor’s (S&P) issued a Request for Comment on proposed changes to its criteria for rating insurance companies globally. Although S&P expects the overall impact on global ratings to be modest, the proposed changes are significant and may adversely affect individual rated (re)insurers. The new criteria are expected to be published in late 2012 or early 2013.

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6. 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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7. 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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8. Catastrophe Bonds* at July 1, 2012: Catastrophe bonds continue to play an increasingly important role in the property catastrophe risk transfer market with particularly robust issuance levels. During the first six months of 2012, 15 transactions came to market, totaling USD3.4 billion of risk principal. In terms of risk principal, this is a 113 percent increase relative to the first half of 2011. Risk principal outstanding now stands at USD13.5 billion, within striking distance of the high water mark of USD14 billion established in 2007 after the post-Katrina-Rita-Wilma issuance surge.

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9. “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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10. Reinsurance Renewal Review: 2012: Here we review GC Capital Ideas’ stories covering the key reinsurance renewals in 2012.

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* Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of an offer to buy any security, financial instrument, reinsurance or insurance product. The securities mentioned herein have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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