Global Reinsurance Review January 2009

Reinsurance rate increases were moderate on average at the January 1, 2009 renewal. The Guy Carpenter World Rate on Line (ROL) Index rose 8 percent, in response to the dual pressures of a financial catastrophe and the second most expensive property catastrophe year on record. The degree to which prices increased was tempered by large capital positions at the beginning of 2008, enabling carriers to absorb the year’s losses, but this is where the generalizations end. Loss history, geography, and line of business led to wide differences in pricing. Expectations of another above-average storm year and the uncertainty surrounding the credit crisis underscore the need for continued capital management discipline in the coming year.

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Gary Venter, Managing Director, Instrat®
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Property catastrophes make the news. Tangible and visual, the carnage can be conveyed with ease, and all can grasp the direct implications immediately. Yet for (re)insurers, there’s another type of catastrophe that could be far more destructive to balance sheets. This threat, which can remain hidden in a portfolio for decades, can arise with little warning and have profound consequences.

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Your vote counts. Click here to participate in the 2008 Reinsurance magazine Readers’ Awards survey. Innovation and client problem-solving are more important than ever before, particularly given the ongoing financial catastrophe. We encourage you to participate in this survey, which covers eleven categories.

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Andrew Marcell, CEO of Americas
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We live in a world at risk, but sometimes, the threats take new forms. Even as we are coming out of an above-average U.S. storm season, carriers are focused on a new type of disaster. Throughout 2008, every major city in the world felt the reverberations of a “financial catastrophe,” triggered by the collapse of the subprime mortgage market. This event has put severe pressure on both sides of the balance sheet and proved that an economic event can have the power to move the market.

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Thomas Herde, Senior Vice President
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The specter of American-style class action litigation looms large over Continental Europe. Many carriers worry that they could face larger claims—and increased legal fees—if this practice is adopted. Litigation financing is particularly daunting, as it provides a way to funnel capital to plaintiffs to support long, intense legal campaigns.

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David Rains, Managing Director
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Carriers thrive on predictability. Risk management techniques, models, and sometimes intricate programs are devised to anticipate insured losses and take the appropriate risk transfer measures. The use of multi-year cover for accident and health lines of business, though in its infancy, could be the next step in mitigating risk and reducing ambiguity. With a longer-term commitment, (re)insurers trade price advantages that come from sharp turns in the market for the predictability that both crave, particularly when the market becomes volatile.

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Emil Metropoulos, Senior Vice President
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When mega-catastrophes occur, we tend to think about large-scale property damage. Until recently, hurricanes, earthquakes, and terror dominated the conversation. A new type of catastrophe has emerged, however, with the potential to cause more economic damage and perhaps even higher insured losses. Casualty catastrophes involving product and professional liability can spread quickly, destroy considerable amounts of shareholder wealth, and take years to resolve completely. In the past, carriers were unable to address this form of risk sufficiently, and balance sheets have remained imperiled.

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David Lewin, Head of International Casualty
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Casualty risk is inherently complex. Few insurers and reinsurers manage the accumulation risk in their casualty portfolios. The right tools simply have not been available to identify and analyze this unique peril. Innovation is catching up with the dangers that carriers face, though. New solutions are making the prospect of a casualty catastrophe—and the estimation of realistic disaster scenario costs—a bit less daunting.

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Emil Metropoulos, Senior Vice President
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Danger routinely enters product supply chains. An error at a plant or even a flawed product design could lead to extensive economic damage. While the direct cost of these events comes to mind first, few grasp the full extent of product liability insurance exposure. The integrated business relationships required to bring a product to market mean that one event could trigger a “casualty catastrophe” that sweeps up component manufacturers and distributors – and their insurers.

Casualty Cat, a new model developed jointly by Guy Carpenter and Arium, Ltd., seeks to identify the hidden product liability accumulations in a carrier’s portfolio and delivers the insights needed for informed action.

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Thomas Herde, Senior Vice President, Casualty
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Justice may be assuming a new visage in Continental Europe. American-style class action litigation is on the horizon. Judges and juries still have their respective roles to play, but the nature of the plaintiff is evolving. The “class action” concept is crossing the Atlantic, bringing with it the potential for longer and costlier litigation and the risk of higher claims. While ambulances are not yet being chased across the continent, (re)insurers are beginning to wonder if they will be stuck with the bill for this emerging trend.

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