January 2nd, 2015

Week’s Top Stories: December 27, 2014 — January 2, 2015

Posted at 8:00 AM ET

Private Catastrophe Bonds: The growth in the utilization of private catastrophe bonds continues at similar rates. Private catastrophe bonds provide the same benefits as 144A catastrophe bonds, including fully collateralized, multi-year protection, but private bonds are more cost-effective and allow for more streamlined documentation given the typically smaller limit size of each transaction. The chart shows the evolution of private catastrophe bonds based both on deal count and total aggregate limit placed. In an environment of growing demand for capital markets capacity, GC Securities*, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC, formulized its private catastrophe bond approach in June 2013 with development of the Tensai private catastrophe bond program in conjunction with Tokio Millenium Solutions’ Shima Re Ltd. facility.

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The Reinsurance Evolution Continues: Executive Summary: During the past twelve months, capital has continued to flow into the reinsurance markets in the form of both insurance-linked securities (ILS) and collateralized reinsurance transactions. This report examines the growth in the ILS market during the past year and some of the important evolutionary elements of catastrophe bond structure and risk transfer. We also explore how the use of capital markets-based capacity provides cost savings for public entities by helping them build surplus, reduce public debt and limit the risk that natural perils can pose to the state’s balance sheet. As collateralized markets continue to increase in importance as an alternative to both traditional reinsurance and ILS, Guy Carpenter has taken an active role in analyzing counterparty risk and developing specific structures and strategies to manage this risk. This report also provides an overview of the manner in which Guy Carpenter assists its clients in managing counterparty risk and limiting credit exposure.

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Casualty Catastrophe Risk Modeling: Casualty (or liability based) catastrophes have become increasingly frequent and severe over the past decade, exposing (re)insurers to much more risk than they may have realized and reserved for. One root cause can trigger a chain reaction that can bleed balance sheets and even imperil solvency. Until recently, casualty carriers had little choice but to accept this risk as losses emerged.

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Cyber-attacks and Terrorism Revealed as Top Emerging Risks for 2015, According to Annual Guy Carpenter Survey: Cyber-attacks and terrorism are ranked among the top emerging risks concerning the (re)insurance industry in the year ahead, according to a survey released by Guy Carpenter. According to the findings, new products, expansion into new geographic markets and access to new distribution channels will be the primary drivers of profitable growth in 2015.

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Understanding Emerging Risks: Imperative for the Future: The downside focus of risk measures highlights what could be a key problem with the debate around emerging risks - when people think about risk they only consider the downside. Cars, penicillin, fossil fuels, the internet - all of these were once emerging risks, and they have caused global destruction through car accidents, antibiotic resistance, climate change, and now, possibly through cyber risk. But they have also brought far better travel, longer and much healthier lives for almost everyone, affordable electricity for people in their own homes, and an explosion of information on a scale never seen before available freely at the click of a button.

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And, You May Have Missed…

Chart: Combined Ratio for Guy Carpenter Composite, H1 2014: Chart presents combined ratio for the Guy Carpenter Global Reinsurance Composite, 2004 through first half, 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. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.

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