September 4th, 2015

Week’s Top Stories: August 29 — September 4, 2015

Posted at 7:00 AM ET

July U.S. Casualty Renewal: Consistent with Guy Carpenter’s post-January 1, 2015 renewal report, the U.S. casualty reinsurance market continued to soften on both quota share and excess of loss reinsurance programs. This trend continues to be driven by the reduction in property catastrophe premiums, causing reinsurers to further diversify their overall premium writings into casualty lines and by the improved loss ratios among these underlying lines of business. As a result, reinsurance pricing continued to soften via ceding commissions increases on quota share placements (albeit at a slower pace than in 2014 and earlier in 2015) and rate decreases on excess of loss placements (subject to stable loss experience).

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Dedicated Reinsurance Capital Estimate at July 1, 2015: Guy Carpenter’s estimate of dedicated reinsurance sector capital as of July 1, 2015 was again produced through our work with A.M. Best. Our estimate is not a simple aggregation of the capital of all companies that write reinsurance since some capital is allocated to the insurance business or other outside interests. In fact, we have seen increased evidence that some companies are shifting capital toward insurance lines and away from reinsurance lines based on the current rate environment. A.M. Best and Guy Carpenter have estimated the amount of capital dedicated to writing reinsurance by reviewing A.M. Best’s proprietary capital model (BCAR) results as well as line of business allocations. Our current estimate of total capital dedicated to reinsurance is approximately USD 400 billion of which the convergence capital, including catastrophe bonds, industry loss warranties (ILWs), collateralized reinsurance and sidecars is USD 66 billion.

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Guy Carpenter Completes Development of Probabilistic European Hail Model: Guy Carpenter announced the completion of the final phase in the development of its pioneering probabilistic European hail model. The enhancements to the G-CAT® Hail Model expand the number of countries covered by the model to include Belgium, Czech Republic, France, Luxembourg, the Netherlands, Spain and Switzerland.

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GC Securities* Report Shows Healthy Catastrophe Bond Activity Supported by Record Issuance of Private Bonds: GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member FINRA/NFA/SIPC, released a briefing and analysis of catastrophe bond activity for the second quarter of 2015, which shows healthy activity across the market and primary issuance levels recorded as the fourth highest second quarter on record.

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Microinsurance Consortium and Venture Incubator Announces New Name: The Microinsurance Consortium, led by a group of leading companies in the insurance industry, announced a new name for their microinsurance venture incubator (MVI) - Blue Marble Microinsurance. The consortium consists of American International Group, Inc., Aspen Insurance Holdings Limited, Guy Carpenter & Company, LLC together with Marsh & McLennan Companies, Inc., Hamilton Insurance Group, Ltd., Old Mutual plc, Transatlantic Reinsurance Company, XL Catlin, and Zurich Insurance Group.

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And, You May Have Missed…

PA/MGA Market Size and Dynamics: Even though responses to the questions on the perceived size of the PA/MGA market continue to reflect it as large, the respondents this year returned to the views of the earliest years of the survey. The largest percentage of respondents (43 percent) believed the market to be sized at USD30 billion to USD40 billion. This range tied with the percentage of respondents (43 percent) believing that the market is sized at USD20 billion to USD30 billion. Interestingly, no respondents believed the market was smaller than USD20 billion or larger than USD50 billion, a first. Fourteen percent of respondents felt the market stood between USD40 to USD50 billion, the highest that number has been since 2008 when it came in at 13 percent.

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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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