May 4th, 2017

GC Capital Ideas Top Stories: First Quarter 2017

Posted at 1:00 AM ET

1. Chart: Solvency II Ratios as of End of H1 2016: Chart presents (re)insurers’ Solvency II ratios compiled by Guy Carpenter for the first half of 2016. Many companies publish their solvency ratios without being required to do so, and some others actually specify target solvency ratio ranges as part of their risk appetite and financial targets. Solvency ratios are another metric for investors to use when assessing the relative financial strength of companies - and (re)insurance buyers can do the same when assessing counterparty risk.

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2. Guy Carpenter Reports Moderating Reinsurance Pricing Decline at January 1, 2017 Renewals: Guy Carpenter & Company reports the decline in reinsurance pricing moderated at the January 1, 2017 renewal across most classes of business and geographies, as compared to the past three renewal seasons.  Several sectors experienced increased loss activity, which had only a localized impact on pricing while capacity remained plentiful. After remaining fairly stable in 2015, dedicated reinsurance capital increased by 5 percent from January 1, 2016 to January 1, 2017 as calculated by Guy Carpenter and A.M. Best. The convergence capital segment increased by 10 percent.

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3. Chart: Top Ten Significant Insured Loss Events: 2016: The table lists the latest estimates for the top ten significant insured loss events for 2016.

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4. 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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5. Managing Catastrophe Model Uncertainty, Issues and Challenges: Here we repeat our series authored by John Major, which focuses on the issues and challenges in managing catastrophe model uncertainty.

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6. Increasing External Demands Compel Companies to Improve Risk Management Disclosures: Guy Carpenter released its latest Enterprise Risk Management (ERM) Benchmark Review in 2014, providing an in-depth analysis of risk management practices and policies of 67 insurance and reinsurance companies located in Europe, United States, Bermuda, and Asia-Pacific. Based on publicly-available data from financial and risk reports, Guy Carpenter’s ERM Benchmark Review reveals that most (re)insurers are managing capital with metric-based frameworks and are publishing more about their risk management targets than seen in Guy Carpenter’s 2009 analysis.

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7. Global Risks Report 2017: The Global Risks Report 2017, produced by the World Economic Forum with support from Marsh & McLennan Companies and other partners, was published. Now in its twelfth edition, the report provides insights into the key global risks facing businesses as well as the collective view of risk experts in all sectors as to the most significant threats to global prosperity over the next decade. The Global Risks Report 2017 will inform discussions at the World Economic Forum’s annual meeting in Davos, Switzerland.

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8. Disruptive Forces Redefining the Role of Insurance: Fundamental disruptive forces are driving monumental changes in the global economy at an unprecedented rate. These forces compel the (re)insurance industry to adjust to the new reality and capitalize on the opportunities created.

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9. Further Considerations on the Hurricane “Shield” Theory: A New York Times article titled “Conditions That Form More Hurricanes Also Protect U.S., Study Finds” notes a hurricane “shield” for the U.S. coast during busy hurricane seasons. The article, based on recent research by James Kossin, provides valuable insight, including some notes of caution from other experts in the field, but the observations should be treated with a moment of pause.

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10. Solvency II Equivalence in the International (Re)insurance Landscape: The concept of equivalence under Solvency II determines to what extent (re)insurance entities outside Europe can operate within the European Union (EU) while relying solely on their local solvency standards. The ability to operate in the EU is a significant issue that impacts multinational (re)insurance companies and groups.

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