July 1st, 2014

GC Capital Ideas Top Stories: June, 2014

Posted at 1:00 AM ET

1. Reinsurance Pricing Falls Again at June 1, 2014 as Competition Heightens: Guy Carpenter reports that downward pressure on reinsurance pricing has increased since the June 1, 2013 renewal due to continued competitive pressure from alternative markets, strong reinsurer balance sheets and low loss experiences. In its June 2014 renewal briefing, Guy Carpenter reports that competition increased as markets offered abundant capacity at reduced pricing. Terms and conditions also came under pressure and multi-year transactions continued to be an area of investigation. Traditional reinsurers sought to protect their market share and alternative providers looked to utilize growing funds.

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2. 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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3. Chart: Global Property Catastrophe ROL Index: The Guy Carpenter Global Property Catastrophe Rate on Line index is presented for 1990 through 2014.  The index fell by 11 percent at January 1, 2014.

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4. Alternative Market’s Impact On Traditional Reinsurers: The April 1, 2014 and June 1, 2014 renewals indicate that competition from the capital markets continues to play a major role in the abundance of reinsurance capacity that is placing pressure on pricing. Here we review Guy Carpenter analyses examining the impact of the alternative markets on traditional reinsurers and how reinsurance carriers are expected to face that challenge through the year.

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

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6. Deployment of Collateralized Property Catastrophe Capacity: The impact the capital markets have had on the property catastrophe reinsurance space is undeniable. Analyzing 2013 market activity, it is also undeniable that much of the movement the market witnessed is as much driven by traditional reinsurers’ changing behaviors. While companies buying catastrophe coverage benefitted, across product type and geography, from collateralized capacity in the market, deployment of this capacity has been targeted.

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7. 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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8. Enhancing Catastrophe Modeling In the Middle East and North Africa:  The Middle East and North Africa (MENA) region is acknowledged to be a key growth area for (re)insurance. Insurance penetration is rapidly increasing but still has some way to go to reach comparable levels with Europe or the United States. In the period 2003-2012, most countries in the region achieved triple-digit percentage increases in premium volume, with some exceeding 600 percent growth (source: Swiss Re Sigma).

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9. Review of Terrorism’s Impact on Insurance and Technology: Here we update our review of some recent GC Capital Ideas stories related to the issue of terrorism, addressing the impact on both the insurance industry and technology.

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10. Guy Carpenter Report Reinforces Need for TRIPRA Renewal: Guy Carpenter released its latest report on global terrorism. The report highlights evolving global terrorism risks and the impact these risks have on the reinsurance market. It also emphasizes the vital role the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) plays in the United States ensuring the availability and affordability of terrorism (re)insurance capacity throughout the country.

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