January 9th, 2017

GC Capital Ideas Top Stories: For The Year 2016

Posted at 1:00 AM ET

A look back at 2016’s most viewed stories.

1. China Risk Oriented Solvency System (C-ROSS): The China Insurance Regulatory Commission (CIRC) is instituting sweeping changes through its three-tiered China Risk Oriented Solvency System (C-ROSS) framework that will dramatically impact how (re)insurers conduct business. It will strengthen capital requirements, risk management and transparency disclosures - bringing China in line with, and in some cases overtaking, global standards. The C-ROSS framework is similar to Solvency II: three tiers focusing on quantitative, qualitative and disclosure requirements.

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2. 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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3. Guy Carpenter Forms Strategic Alliance to Develop Cyber Aggregation Model: Guy Carpenter & Company announced the formation of a strategic alliance with Symantec Corporation, a global leader in cyber security, to create a cyber aggregation model. The model will include a comprehensive catalogue of cyber scenarios from which insurers can derive frequency and severity distributions to measure the potential financial impact of loss from both affirmative cyber coverages and “silent” all-risk policies where cyber is the peril, but no cyber exclusions exist.

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4. Own Risk and Solvency Assessment (ORSA) Framework: (Re)insurers that are required to implement Own Risk and Solvency Assessment (ORSA), or a similar framework such as Internal Capital Adequacy Assessment Process (ICAAP), may benefit by adopting a strong ORSA/enterprise risk management (ERM) framework. One such framework that could work on a global basis is illustrated below

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5. Evolution of Risk Capital: The continued flow of new capital into the (re)insurance industry constitutes the largest change to the sector’s capital structure in recent memory. New capital has entered the market through investments in insurance-linked securities (ILS) funds, sidecars, hedge fund-backed reinsurance companies and collateralized reinsurance vehicles. Investors have increasingly been attracted to low correlation returns from catastrophe risk relative to traditional capital markets risks and the attractive yield for the measured (re)insurance risk relative to other investments, particularly in the current low inflation, low yield era.

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6. Insured Versus Uninsured Loss: There are a number of factors that contribute to the gap between economic loss and insured loss and as new risks emerge such as climate change and political risk, this gap will only continue to widen.

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7. Chart: Top Ten Catastrophe Bond Transactions for 2015: The table lists the top ten catastrophe bond transactions that were completed in 2015.

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8. The Insurance Of Things & Industry 4.0 - A Matrix View: Technological progress and the accumulation of assets have not only stimulated the development of insurance products; they have in turn been nurtured by the availability of these offerings.

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9. Potential Losses From the Kumamoto Earthquake: The catastrophe modeling firm RMS estimated the economic loss for property risks to be between USD2.5 billion and USD3.5 billion. This estimate includes only residential, commercial, and industrial property and contents. Catastrophe modeling firm AIR estimated the insured loss to be between USD1.7 billion and USD2.9 billion for property risks. Both catastrophe modeling firms’ estimates exclude infrastructure, business interruption and contingent business interruption.

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10. Hurricane Matthew: Hurricane Matthew became a rare Category 5 hurricane on the Saffir-Simpson scale, with maximum sustained winds of 160 mph. The hurricane followed the western edge of a subtropical ridge to inflict catastrophic damage to Haiti as a Category 4 hurricane before crossing eastern Cuba, and turning to the northwest through the Bahamas towards Florida.

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