June 27th, 2014

Week’s Top Stories: June 21 — 27, 2014

Posted at 8:00 AM ET

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.

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Uncertainty Surrounding the 2014 Atlantic Hurricane Season: Guy Carpenter released its briefing on the 2014 Atlantic hurricane season. The report examines the factors that influence the severity of any given hurricane season and emphasizes that while predictive and historical models can provide guidance, landfalls are always a real possibility and preparation is key for property owners and the (re)insurance industry alike.

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Review Of Climate Change: Here we review recent GC Capital Ideas stories focused on climate change.

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The Total Value of Reinsurance for Long-Tail Business: Can we learn from Solvency II to unlock the hidden value of reinsurance for long-tail business?

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Chart: Reliance On TRIPRA: The chart shows that in 2012 there were over 850 insurers participating in the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), writing over USD183 billion in premiums. Using the current 20 percent deductible requirement of TRIPRA and policyholder surplus as a filter, Guy Carpenter found that the smaller to mid-sized insurance carriers would be most affected should there be an increase in the deductible of any program that replaces TRIPRA. Without TRIPRA, insurers with less than USD300 million in surplus would likely need to incorporate additional private reinsurance market capacity to protect their capital and to satisfy rating agencies and regulators.

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And, You May Have Missed…

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. Traditional players are also hedging their bets and creating their own capital markets divisions to attract, manage and utilize capital from third-party sources whether in the form of fund management, managed accounts or sidecars.

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