March 21st, 2014

Week’s Top Stories: March 15 – 21, 2014

Posted at 8:00 AM ET

Time Off for Certain Behavior: Behavioral economics is a fascinating field and one which actuaries should be aware of in their everyday work. It is the study of inherent biases in human decision-making. Many examples of these biases have been cited in connection with the financial crisis, and increasingly the implications for insurance are being examined. In a speech entitled ‘The Human Face of Regulation’ in April 2013, Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), explained how the FCA is going to use the principles of behavioral economics in the protection of the consumer

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Increasing External Demands Compel Companies to Improve Risk Management Disclosures: Guy Carpenter released its latest Enterprise Risk Management (ERM) Benchmark Review that provides an in-depth analysis of risk management practices and policies of 67 insurance and reinsurance companies located in Europe, United States, Bermuda, and Asia-Pacific. Based on publicly-available data from financial and risk reports, Guy Carpenter’s ERM Benchmark Review reveals that most (re)insurers are managing capital with metric-based frameworks and are publishing more about their risk management targets than seen in Guy Carpenter’s 2009 analysis. Capital market, legislative, and regulatory influences, such as the approaching implementation of Solvency II, are expected to further compel company managements to better recognize and analyze the risks of their enterprises.

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Global Catastrophe Review, 2013: 2013 provided a respite for the (re)insurance industry following above-average losses in 2011 and 2012, with insured losses from natural catastrophes and man-made disasters estimated at around USD40 billion, according to Guy Carpenter. This is considerably less than the ten-year average loss of approximately USD60 billion and well below the most significant years of 2005 and 2011. This can be partly attributed to the unusually quiet 2013 Atlantic tropical season. About 47 percent of insured losses in 2013 were reported in the Americas, 31 percent in Europe and 20 percent in Asia and Australasia.   

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Catastrophe Bond Outlook for 2014: The growing influence of alternative markets capacity is pressuring traditional reinsurers’ business model and challenging them to compete against a model with lower-cost of capital that continues to enter the reinsurance market. Most reinsurance companies have responded to the challenge by leveraging their incumbent status on reinsurance programs, offering similar or better terms and similar or reduced pricing. Particularly, traditional players are emphasizing their ability to efficiently provide reinstatements, which are seen by many as a critical part of core reinsurance programs, particularly for working reinsurance layers.

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January 2014 Renewal Report: Capacity: Evolution, Innovation and Opportunity: The January 1, 2014 renewal saw rates on line fall significantly in nearly all regions and business segments as relatively low loss experiences, strong balance sheets and an influx of capital spurred competition and innovation in the reinsurance market. This culminated in a marketplace focused on meeting individual client needs as reinsurers reacted to the challenge posed by alternative markets and alternative markets, in turn, sought to deliver unique solutions. Insurers also looked to capitalize by adapting their buying strategies and prioritizing their risk transfer goals.

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And, You May Have Missed….

Chart: Rate Movements by Business Segment: Reports rate movements at January 1, 2014.

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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/NFA/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. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. 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 any offer to buy any security, financial instrument, reinsurance or insurance product.

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