February 4th, 2013

GC Capital Ideas Top Stories: January 2013

Posted at 1:00 AM ET

1. 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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2. 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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3. 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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4. Chart: Guy Carpenter Regional Rate on Line Index, January 2013: There was variation regionally in the Guy Carpenter Regional Property Catastrophe Reinsurance Rate on Line (ROL) index. U.S. property catastrophe pricing was most affected by the landfall of Superstorm Sandy while other regions were flat to down.

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5. Chart: Global Significant Insured Losses, 2011 to Q4 2012: 2012 insured losses in aggregate were “normal.”

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6. Terrorism: Merits of Reinsurance Protection: Although the need for the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) 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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7. Guy Carpenter Makes Senior Appointments in GC Securities: Guy Carpenter announced that Andrew Beecroft and Paul Rayner have been appointed as Managing Directors of GC Securities,* effective January 7, 2013.

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8. Chart: U.S. and Bermuda Property-Casualty M&A Activity, 2004 to 2012: For the property and casualty sector, market consolidation was at the periphery.

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9. Chart: Long-Term Evolution of Shareholders’ Funds, 1998 to Q3 2012: Dedicated reinsurance capital was at a record high immediately prior to Superstorm Sandy.

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10. Capital Model Trends: Here we highlight recent stories that have appeared on GC Capital Ideas discussing trends around capital models.

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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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