December 11th, 2015

Week’s Top Stories: December 5 - 11, 2015

Posted at 8:00 AM ET

Reserving and Capital Setting: The Crystalization of Emerging Risks: As discussed in the Executive Summary of this report, the term “crystalization of risk” refers to the timescale over which we realize that the risk is manifesting itself and how this view changes until ultimate understanding of quantum is reached and all liabilities are discharged. The “Reserving Risks” section in last year’s report, Ahead of the Curve: Understanding Emerging Risks looked at how information emerges in the presence of reserving cycles. The profit or loss in any particular financial year is made up of not only the profit or loss from the same accident year but also any recognized changes in the reserves on prior years.

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Chart: Global Property Catastrophe ROL Index 1990 to 2015: The Guy Carpenter Global Property Catastrophe Rate on Line (ROL) index is presented for 1990 through 2015.

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Risk Profile, Appetite, and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness: Prior to the recent turbulence in the financial markets, insurers and reinsurers were increasing their use of enterprise risk management (ERM) to make risk and capital management decisions. While this was driven in part by rating agencies and regulators, many carriers began to recognize the value of metric-based frameworks and capital models in evaluating their portfolios.

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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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Reinsurance Mergers and Acquisitions Deja-vu, Buyers Beware: Since 2014, there have been four mergers and acquisitions (M&As) within the reinsurance space that are pure consolidations rather than transactions by an acquirer from outside the sector. To date, we estimate that this consolidation wave has affected some USD 11 billion of net premium income and 5 percent of the global reinsurance market. However, that is short of the USD 16 billion and 13 percent, respectively, for the mid-1990s. There is nothing unusual about M&A. It is a cyclical phenomenon and very much in tune with the broader financial market environment.

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And, You May Have Missed…

PA/MGA Growth Through Acquisitions: The survey indicates a dramatic shift in the percent of program carriers interested in making acquisitions, following a couple of years of steady decline. This year, 69 percent of respondents indicated an interest in growing through acquisitions (up from 44 percent in 2012). When queried on the types of acquisitions they are seeking, most respondents’ interests appear to be acquiring either MGA/PA firms (63 percent) or teams of people (32 percent). This year none of the respondents was interested in acquiring third party administrators or wholesalers. Interest in carriers buying other insurance carriers remained relatively unchanged at 19 percent.

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