Archive for the ‘Casualty’ Category



April 24th, 2014

Capital Stewardship Options

Posted at 1:00 AM ET

Here we bring together recent GC Capital Ideas stories that have presented options that good capital stewards in the reinsurance industry are currently considering for deployment of excess capital. 

Maintaining the Status Quo: One of the biggest challenges facing reinsurers is deciding how to deploy excess capital to generate a return that meets or exceeds the expectation of investors or shareholders.

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Return to Shareholders:  As a principle, excess capital should be returned to shareholders in periods of low return opportunity (particularly below cost of capital) while more capital should be retained/deployed during periods that offer higher returns. The chart here on the Global Reinsurance Composite Return of capital shows that reinsurers have been relatively disciplined over the last eight years, with carriers returning more capital when the pricing environment has softened.

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Organic Growth: With an abundance of excess capital, negligible growth in global reinsurance spend and the pricing outlook continuing to soften, one of the biggest challenges facing reinsurers is deciding how to deploy this excess capital to generate a return that meets or exceeds the expectation of investors or shareholders. Here we consider the option of organic growth.

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M&A - Grow/Diversify by Product Line: As carriers explore M&A opportunities to grow in the current environment, there is strong interest from potential buyers looking for bolt-on opportunities rather than transformational transactions. Although this demand has not to-date triggered a significant increase in M&A transactions, the ingredients for more activity are now in place.

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M&A - Grow/Diversify by Territory: With growth opportunities limited in mature markets, many insurers are looking to emerging markets for future expansion, in particular China, Southeast Asia and Central and Latin America. The chart here highlights gross written premium growth in emerging markets compared to developed markets from a 2003 base.

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M&A: Achieve Meaningful Scale in Reinsurance: In a reinsurance market with abundant excess capital and where most reinsurance programs are oversubscribed, the need for a meaningful line size or differentiated underwriting contribution has never been more relevant.

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M&A: The Evolving Legacy (Run-Off) Market: The recent completion by legacy solution specialists of a number of acquisitions in the live insurance space could be a watershed moment for the standalone run-off market. The original business concept of a run-off manager was a pure focus on legacy business - to achieve finality in legacy claims and manage the outstanding book of legacy business in the same cost efficient way that an insurer would manage a renewal book of business.

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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.

April 23rd, 2014

Periodic Payment Orders

Posted at 1:00 AM ET

Here we bring together the GC Capital Ideas two part series on periodic payment orders authored by Victoria Jenkins: 

Time Off for Certain Behavior, Part I: Behavioral economics is a fascinating field and one which actuaries should be aware of in their everyday work. It is the study of inherent biases in human decision-making. Many examples of these biases have been cited in connection with the financial crisis, and increasingly the implications for insurance are being examined.

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Time Off for Certain Behavior, Part II: Our experience in doing this has led to an “actuarial hunch” that PPO claims converted to their Ogden equivalents are not from the same underlying statistical distribution as traditional lump sum values. Fitting severity distributions to these claims in among the traditional lump sums can feel a bit like fitting to “apples and oranges.”

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April 22nd, 2014

GC Capital Ideas Review of Terrorism’s Impact on Insurance and Technology

Posted at 1:00 AM ET

Here we review some recent GC Capital Ideas stories related to the issue of terrorism, addressing the impact on both the insurance industry and technology:

Chart: Countries Operating Compulsory or Optional Terrorism Pools:  A summary of the compulsory and optional terrorism pools that operate around the globe. 

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Guy Carpenter Insights on A.M. Best’s 2013 Updates: A.M. Best has recently issued several insurance ratings updates. Among them, insurers that are overly dependent on the Terrorism Risk Insurance Authorization Act (TRIPRA) may face negative rating pressure when the act expires at the end of 2014. A.M. Best continues to assess the impact of terrorism risk exposure relative to BCAR levels in its discussions with carriers.

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Range of Cyber Risks: Cyber risks range from legal liability and computer security breaches to privacy breaches of confidential information. Data breaches typically involve the intent to either copy, extract or destroy data. However, the risks that companies face transcend simple data incidents and often include the broader range of perils associated with the structural vulnerability of our economy to failures of technology generally. Further risks include cyber extortion, cyber terrorism, loss of revenue due to a computer attack, recovery costs, reputational damage and supply chain disruption.

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April 16th, 2014

Reinsurance Renewals in 2014

Posted at 1:00 AM ET

As we complete the April 1, 2014 reinsurance renewal, we review the GC Capital Ideas renewal stories of 2014. 

January 1, 2014 Renewals Bring Downward Pressure on Pricing: Guy Carpenter reports that reinsurance rates-on-line fell at the January 1, 2014 renewal in nearly all classes and regions. According to Guy Carpenter’s 2014 global renewal report, strong balance sheets, relatively low loss experiences and an unprecedented influx of convergence capital spurred competition and innovation at renewal. These factors led in turn to surplus capacity across most business segments as competition spilled beyond property catastrophe lines.

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April Renewals Bring Price Reductions & Focus on Tailored Coverage: Guy Carpenter reports that the April 1, 2014 renewal was marked by price reductions and more tailored reinsurance coverage. Strong balance sheets, an abundance of capacity and a consolidation of buying led to lower reinsurance pricing across most territories and business segments at the renewal.

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April 15th, 2014

Guy Carpenter and Oliver Wyman Publish Third Annual Insurance Risk Benchmarks Report

Posted at 1:00 AM ET

Guy Carpenter and its sister company, Oliver Wyman, the international management consulting firm, published the third annual Insurance Risk Benchmarks in September of 2013. We highlight the report here again. 

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April 7th, 2014

GC Capital Ideas Top Stories: March 2014

Posted at 1:00 AM ET

1. 2013 Closes with Near Record Catastrophe Bond Issuance According to GC Securities*: GC Securities, a division of MMC Securities Corp., a U.S. registered broker-dealer and member of FINRA/SIPC, released an analysis of activity and trends within the catastrophe risk market from the fourth quarter of 2013, also including the outlook for 2014. According to the report, influence from direct capital markets’ participation in reinsurance programs, coupled with catastrophic insured losses well below historical averages in 2013, put significant pressure on global catastrophic reinsurance pricing. As a result of significantly reduced pricing, relative to recent years, approximately $7.1 billion worth of new property and casualty (P&C) catastrophe bonds were issued in 2013 - the second highest record year for P&C issuance.

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2. Time Off for Certain Behavior: Behavioral economics is a fascinating field and one which actuaries should be aware of in their everyday work. It is the study of inherent biases in human decision-making. Many examples of these biases have been cited in connection with the financial crisis, and increasingly the implications for insurance are being examined. In a speech entitled ‘The Human Face of Regulation’ in April 2013, Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), explained how the FCA is going to use the principles of behavioral economics in the protection of the consumer.

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3. January 2014 Renewal Report: Capacity: Evolution, Innovation and Opportunity: The January 1, 2014 renewal saw rates on line (ROLs) fall significantly in nearly all regions and business segments as relatively low loss experiences, strong balance sheets and an influx of capital spurred competition and innovation in the reinsurance market. This culminated in a marketplace focused on meeting individual client needs as reinsurers reacted to the challenge posed by alternative markets and alternative markets, in turn, sought to deliver unique solutions. Insurers also looked to capitalize by adapting their buying strategies and prioritizing their risk transfer goals.

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4. Cyber Review: As Guy Carpenter launches its new Cyber Solutions Specialty Practice, we review recent GC Capital Ideas stories on cyber.

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5. Chart: Global Property Catastrophe ROL Index: The Guy Carpenter Global Property Catastrophe Rate on Line index is presented for 1990 through 2014.  The index fell by 11 percent at January 1, 2014.

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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 that provides 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. Capital market, legislative, and regulatory influences, such as the approaching implementation of Solvency II, are expected to further compel company managements to better recognize and analyze the risks of their enterprises.

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7. Guy Carpenter Makes Senior Promotions: Guy Carpenter announced that Massimo Reina was promoted to the position of CEO of Continental Europe and MENA, with immediate effect. He succeeded Peter Stubbings, who took up the position of Chairman of the firm’s Bermuda operations.

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8. Global Catastrophe Review, 2013: The year provided a respite for the (re)insurance industry following above-average losses in 2011 and 2012, with insured losses from natural catastrophes and man-made disasters estimated at around USD40 billion, according to Guy Carpenter & Company. This is considerably less than the ten-year average loss of approximately USD60 billion and well below the most significant years of 2005 and 2011. This can be partly attributed to the unusually quiet 2013 Atlantic tropical season. About 47 percent of insured losses in 2013 were reported in the Americas, 31 percent in Europe and 20 percent in Asia and Australasia.

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9. Chart: Rate Movements by Business Segment: Reports rate movements at January 1, 2014.

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10. What is Food Security? : Food security exists when all people, at all times, have physical, social and economic access to sufficient safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life. Fundamentally food has to be safe, nutritious and available in sufficient quantity. On a global scale these are always achievable. It is at a country or smaller geographic territory-level where problems often arise.

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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.

March 27th, 2014

Recent Sun Flare Event Is a Reminder of Solar Weather Hazards

Posted at 1:00 AM ET

On Monday, February 24, 2014, the sun once again provided a reminder of the potential hazards of solar weather events. A large solar flare was reported by the National Aeronautics and Space Administration (NASA) measuring at X4.9 (1) (or according to the National Weather Service’s Space Prediction Center, an R3 (strong) Solar Flare Radio Blackout) (2) that could cause severe disruption to satellites and technology on Earth.

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March 26th, 2014

What is Food Security? Part III: Putting It into Practice and a Look to the Future

Posted at 1:00 AM ET

peter_book_-smaller-hsPeter Book, Head of Agriculture, Asia Pacific

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Putting it into practice

In several Asian countries there are already examples of attempts to alleviate the physical, social and economic factors that hamper food security.

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March 25th, 2014

What is Food Security? Part II

Posted at 1:00 AM ET

peter_book_-smaller-hsPeter Book, Head of Agriculture, Asia Pacific

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Social: Managing the supply side.

A challenge in many regions is the transport from the farm of the right food to the consumer without physical loss or spoilage. Putting transit losses aside, there is a question of getting the “correct” food and influencing the supply chain.

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March 24th, 2014

What is Food Security? Part I

Posted at 1:00 AM ET

peter_book_-smaller-hsPeter Book, Head of Agriculture, Asia Pacific

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Food security exists when all people, at all times, have physical, social and economic access to sufficient safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life.¹

Fundamentally food has to be safe, nutritious and available in sufficient quantity. On a global scale these are always achievable. It is at a country or smaller geographic territory-level where problems often arise. These concepts encompass the first part of the opening statement and relate to access:

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