1. Convergence Capital’s Impact on the Reinsurance Market: The growth in convergence capital has resulted in insurance linked securities (ILS) catastrophe risk pricing decoupling from price expectations in the traditional reinsurance market, with some ILS products now offering the most competitive terms for reinsurance buyers. Strong appetite for U.S. hurricane catastrophe bonds, for example, has tightened spreads in the secondary market by an average of approximately 45 percent on a weighted notional basis since issuance in 2012. Despite the significant decrease in ILS pricing over the last 12 months, investor demand continues to be robust. Indeed, projections by GC Securities indicate that the catastrophe bond market alone could reach USD23 billion by the end of 2016.
2. Demand for Asia Pacific Catastrophe Reinsurance at a Record High in 2013: Total Asia Pacific catastrophe limit purchased in 2013 increased for the tenth year in a row, but once again failed to keep pace with strong gross domestic product growth in the region, according to a new report released today by Guy Carpenter.
3. July 1 Renewals Indicate Downward Pressure on Reinsurance Rates Likely to Continue through 2013: Guy Carpenter reports that reinsurance market rates on line (ROLs) continued to be driven by an influx of capital from third-party investors at the July 1 renewals, in spite of catastrophe losses reaching approximately USD20 billion during the first six months of 2013 (above the ten-year average for the period). In a briefing released today, Guy Carpenter comments that robust catastrophe bond, sidecar and collateralized reinsurance activity throughout the year has for the first time pushed pricing in the capital markets to “decouple” or breakaway from levels set by the traditional market. This has in turn prompted downward pressure on overall traditional market pricing.
4. January 1, 2014 Renewals Bring Downward Pressure on Pricing: Guy Carpenter reports that reinsurance rates on line fell at the January 1, 2014 renewal in nearly all classes and regions. According to Guy Carpenter’s 2014 global renewal report, strong balance sheets, relatively low loss experiences and an unprecedented influx of convergence capital spurred competition and innovation at renewal. These factors led in turn to surplus capacity across most business segments as competition spilled beyond property catastrophe lines.
5. Uncertainty in Catastrophe Models: How Much of it is Reasonable?: It seems reasonable to expect a degree of uncertainty in catastrophe model results. It is not uncommon, however, for models to produce results that differ by several factors. In order to assess how much of this uncertainty is epistemic, due to our incomplete knowledge of the physical phenomena involved, this existing uncertainty needs to be quantified.
6. 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.
7. Super Typhoon Haiyan: Super Typhoon Haiyan meets or surpasses the record of the strongest landfalling tropical cyclone in recorded history, and is among the strongest ever recorded. Haiyan made landfall during the early morning hours of November 8 near Guiuan, with estimated 1-minute wind speeds of 185-195 mph.
8. 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. The clause is only relevant to losses that are of a long-tail nature (that take a long time to become paid) and is commonly found in the terms and conditions of motor liability, general liability and professional liability excess of loss reinsurance contracts of European cedents.
9. Guy Carpenter Insights on A.M. Best’s 2013 Updates: A.M. Best has recently issued several insurance ratings updates. Guy Carpenter has reviewed those updates and has key insights to help companies better understand their potential impact.
10. Chart: Guy Carpenter Global Rate on Line Index, January 2013: The Guy Carpenter Global Property Catastrophe Reinsurance 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.