January 18th, 2013

Week’s Top Stories: January 12 - 18, 2013

Posted at 10:30 AM ET

Terrorism: Merits of Reinsurance Protection: Although the need for the Terrorism Risk Insurance Program Reauthorization Act of 2007 is clear, reinsurance protection can help companies withstand the non-renewal or alteration of the program. Indeed, even though the federal backstop currently remains in place, some insurers have decided to further protect their balance sheet with reinsurance protections.

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January 1, 2013 Renewals Bring Stable Reinsurance Pricing:  Guy Carpenter reports that the reinsurance sector enters 2013 equipped with ample dedicated capital and stable pricing. In its 2013 global renewal report, The Route to Profitable Growth, Guy Carpenter finds that the January 1, 2013 renewals took place against a stable backdrop, with only loss-affected lines and select regions experiencing price volatility. The market was supported by a combination of factors including lower than normal catastrophe losses during the first nine months of 2012, new reinsurance capacity and record-high levels of capital.

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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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Chart: Guy Carpenter Global Rate on Line Index, January 2013: The Guy Carpenter Global Property Catastrophe Reinsurance Rate on Line (ROL) index fell marginally at the January 1, 2013, renewal. This is the seventh consecutive annual renewal in which changes to the index have equaled 10 percent or less, indicating a global market with capacity appropriate to meet demand.

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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 - is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss reinsurance treaty over the duration of the claims payout pattern.

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And, you may have missed…..

History of Microfinance:  By most accounts, the modern microfinance movement began in Bangladesh more than 25 years ago, with the official opening of Grameen Bank in 1983. This institution and its revolutionary “double bottom-line,” “social business” practices remains 95 percent owned by its poor clients and has had lasting effects on the microfinance industry and on economic development efforts in general. Grameen Bank was profitable for 22 of its first 25 years of existence and has helped 65 percent of its clients’ families to exit poverty.

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