July 1st, 2013

GC Capital Ideas Top Stories: June 2013

Posted at 1:00 AM ET

1. Influx of Convergence Capital Triggers Downward Pressure on Pricing at June 1 Renewals: Guy Carpenter & Company reports that the reinsurance sector has witnessed dynamic capital growth in 2012 and 2013, spurred by an influx of capital from alternative sources. In its June 2013 renewal briefing, Guy Carpenter finds that this surge in alternative or “convergence” capital has changed the nature of the sector’s capital structure, as investors grow increasingly comfortable with supplying capacity through a convergence of both traditional and alternative vehicles. This market dynamic has also begun to impact significantly reinsurance pricing for peak property catastrophe risks in the U.S., with surplus capacity and lower target returns driving downward pressure on pricing for June 1 renewals and likely through the remainder of 2013.

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2. Chart: Alternative Capacity as a Percentage of Global Property Catastrophe Reinsurance Limit: The increasing influence of alternative capacity is demonstrated by the chart below, which shows the growth of convergence capacity as a percentage of global property catastrophe limit from 2008 to 2013 (projected).

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3. Specialty Insurance Program Market Poised for Growth Opportunities in 2013: Guy Carpenter & Company today released the findings of its eighth annual Specialty Insurance Program Issuing Carrier Survey. The survey, which analyzes trends and benchmarks movement in the Program Administrator and Managing General Agency (PA/MGA) market, reveals that the PA/MGA market continues to thrive and is well-positioned for growth in the year ahead.

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4. Chart: RBC Ratio to BCAR: In Figure 1, RBC Ratio is defined as the ratio of aggregate Total Adjusted Capital to Authorized Control Level RBC for each of 111 combined insurance groups. Plotted against BCAR, there is clearly a strong correlation between the measures, though the relationship is not perfect.

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5. 2013 Atlantic Hurricane Activity: Guy Carpenter has published a new briefing: 2013 Atlantic Hurricane Activity to Reach or Exceed 1995-2012 Average. The 2013 Atlantic hurricane season is expected to be a busy one, carrying at least average activity with respect to the 1995-2012 “active” period. Seasonal outlook providers consistently emphasize two factors: the absence of El Niño, which implicates average activity, and higher tropical Atlantic sea-surface temperatures (SSTs), which implicate higher activity.

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6. Chart: Evolution of Shareholders’ Funds for the Guy Carpenter Global Reinsurance Composite: The growth in the Guy Carpenter Global Reinsurance Composite is illustrated below, covering 2011 to first quarter 2013.

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7. A.M. Best BCAR Updates: A briefing prepared by Guy Carpenter’s Ratings Advisory Team outlines important changes to the BCAR methodology and their implications.

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8. April 1 Renewals See Reinsurance Pricing Stabilize Amid Dynamic Capital Growth: Guy Carpenter reports that dynamic capital growth and ample reinsurance capacity resulted in a relatively stable renewal at April 1, 2013. In a briefing released today, Guy Carpenter comments that the convergence of traditional and alternative capital sources is changing the marketplace, with non-traditional capacity now making up an estimated 14 percent of global property catastrophe limit.

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9. Catastrophe Bond Activity: Here we review recent GC Capital Ideas stories that have reported catastrophe bond transactions in which GC Securities was involved.

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10. Tokio Solution Management and GC Securities Create Private Catastrophe Bond Platform: Tokio Solution Management Ltd. (”Tokio Solution”) and GC Securities*, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/SIPC, are pleased to announce the creation and launch of a private catastrophe bond platform called the Tokio Tensai(TM) Platform.

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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 US 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, Inc. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.

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