October 12th, 2012

Week’s Top Stories: October 6 - 12, 2012

Posted at 10:30 AM ET

Comparing Solvency II Standard Scenarios for Windstorms with Catastrophe Model Outcomes - Updated Study: With the generalized use of catastrophe models to measure the natural catastrophe exposure of insurance portfolios, the outcomes of these models have more and more influence in the determination of reinsurance needs. With the introduction of the Solvency II regime, the decision on reinsurance purchase should also be an integral part of a company’s risk management process.

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What is the Reserving Cycle? Reserve releases have helped support financial results in the face of significant catastrophe losses in recent years. There are nevertheless indications that reserve redundancies will soon run out even though the sector continued to benefit from reserve releases on a calendar year basis in 2011. Figure 1 shows how calendar year redundancies have been a feature of earnings for a composite of 26 large U.S. P&C carriers since 1995.

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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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Guy Carpenter Adds to Regional Reinsurance Market Expertise with New Hire: Guy Carpenter announced the appointment of Peter Barr as Senior Vice President. Mr. Barr is based in Portland, Maine.

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Catastrophe Activity: Increasing Cold Spots: In addition to the challenging macroeconomic environment, the sector has had to contend with heavy catastrophe losses over the last few years, particularly in areas not previously considered peak risks. Since 2010, (re)insurers have been hit by powerful earthquakes in Chile and New Zealand and devastating floods in Thailand and Australia. The result has been unexpectedly expensive “cold spot” losses at a time of increased insurance demand in regions such as emerging Asia and Latin America.

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And, you may have missed…..

Reinsurance Brokers: Orderly Markets and Optimized Results, Executing the Transaction: The primary role of the reinsurance broker is to help insurers move risk out of their portfolios, most often - unsurprisingly - via the purchase of reinsurance. Cedents have three basic objectives for the use of reinsurance: reduce risk held, optimize the productivity of capital and manage earnings. The first is clear - reinsurance entails the act of transferring risk to another party. In doing this, the cedent gains flexibility in deploying the capital it has on hand, which produces revenue, market share and market capitalization growth opportunities. Insurers also use reinsurance to remove some volatility from their earnings. Consequently, reinsurance is much more than a tactical risk management tool; rather, it is of strategic value to every cedent in the marketplace.

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