Archive for the ‘Uncategorized’ Category



September 17th, 2018

Healthcare Target of Increased Cyberattacks

Posted at 1:00 AM ET

holding-healthcare-to-ransom-cover-image-6Over the past decade, the healthcare industry has been haunted by headlines of data breaches. Three of the largest reported incidents impacting healthcare organizations in 2015 alone affected more than 100 million patient records and resulted in hundreds of millions of dollars in settlements. Data and cyber breaches have real financial and reputational impacts.

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January 6th, 2016

Chart: Estimated Dedicated Reinsurance Sector Capital, 2012 to YE 2015

Posted at 3:27 PM ET

The chart shows that a preliminary estimate of total capital dedicated to reinsurance is approximately USD 400 billion, unchanged from the previous year.

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December 2nd, 2013

GC Capital Ideas Top Stories: November 2013

Posted at 1:00 AM ET

1. Super Typhoon Haiyan: Super Typhoon Haiyan meets or surpasses the record of the strongest landfalling tropical cyclone in recorded history, and is among the strongest ever recorded. Haiyan made landfall during the early morning hours of November 8 near Guiuan, with estimated 1-minute wind speeds of 185-195 mph (300-315 km/hr).

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2. Demand for Asia Pacific Catastrophe Reinsurance at a Record High in 2013: Total Asia Pacific catastrophe limit purchased in 2013 increased for the tenth year in a row, but once again failed to keep pace with strong gross domestic product growth in the region, according to a new report released today by Guy Carpenter.

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3. The Reality of Global Warming: The increase in the global mean air temperature, as compared to the 1951-1980 average, is depicted in Figure F-2, and the surge in average oceanic heat content for the 0-700 meter layer is depicted in Figure F-3. The increase in oceanic heat content in particular is notable as it takes a very large amount of energy to heat such a volume of water.

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4. Cyber Risk and its Impact on Supply Chains: Cyber risks are not isolated and are usually connected to other risks. Many companies that are exposed to cyber risks are, for example, also exposed in turn to risks to their supply chain. Due to technological innovation and advances, many parts of a company’s or industry’s supply chain have become interconnected and automated. Technology is indeed a critical enabler of a supply chain’s operations. Therefore a cyber attack has the potential to put an entire company’s supply chain at risk. Cyber security and supply chain risk management must therefore be considered in conjunction with one another.

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5. Guy Carpenter Extends Coverage of Industrial Park Database to Include Vietnam, Malaysia and South Korea:  In 2011, Thailand experienced its worst flooding in years with insured losses estimated at around USD15 billion, of which the Thai General Insurance Association attributed more than 90 percent arising from commercial risks located within industrial parks. As industrial parks are common in several countries in the region, Guy Carpenter developed a database of digitized boundaries of these parks to support its clients’ ability to analyze the potential for catastrophic losses arising from exposures located within park boundaries.

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6. New Geographic Markets to Drive Profitable Growth in 2014, According to Second Annual Guy Carpenter Survey:  Expansion into new geographic markets, new products and access to new distribution channels will be the primary drivers of profitable growth in 2014, according to a new survey released today by Guy Carpenter.

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7. Indexation Clauses in Liability Reinsurance Treaties:  A Comparison Across Europe: The Indexation Clause - otherwise referred to as the Stability Clause, Inflation Clause or Severe Inflation Clause - is designed to maintain the real monetary value of the retention and (where applicable) the limit under a long-tail excess of loss reinsurance treaty over the duration of the claims payout pattern.

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8. 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 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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9. Uncertainty in Catastrophe Models: How Much of it is Reasonable?  It seems reasonable to expect a degree of uncertainty in catastrophe model results.  It is not uncommon, however, for models to produce results that differ by several factors.  In order to assess how much of this uncertainty is epistemic, due to our incomplete knowledge of the physical phenomena involved, this existing uncertainty needs to be quantified.

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10. Chart: Guy Carpenter Global Rate on Line Index, January 2013: The Guy Carpenter Global Property Catastrophe Reinsurance Rate on Line index fell marginally at the January 1, 2013, renewal. This is the seventh consecutive annual renewal in which changes to the index have equaled 10 percent or less, indicating a global market with capacity appropriate to meet demand.

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November 5th, 2012

GC Capital Ideas Top Stories: October 2012

Posted at 1:00 AM ET

1. 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 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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2. Comparing Solvency II Standard Scenarios for Windstorms with Catastrophe Model Outcomes - Updated Study: With the generalized use of catastrophe models to measure the natural catastrophe exposure of insurance portfolios, the outcomes of these models have more and more influence in the determination of reinsurance needs. With the introduction of the Solvency II regime, the decision on reinsurance purchase should also be an integral part of a company’s risk management process. Specifically, an important consideration is the impact of reinsurance contracts on the Solvency Capital Ratio, a key decision metric of the risk management process. This process is not always easy when the probable maximum losses (PMLs) derived by the cat models differ from the standard European scenarios under Solvency II for calculation of the Solvency Capital Requirement for cat risk (SCRCat).

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3. What is the Reserving Cycle? Reserve releases have helped support financial results in the face of significant catastrophe losses in recent years. There are nevertheless indications that reserve redundancies will soon run out even though the sector continued to benefit from reserve releases on a calendar year basis in 2011. Figure 1 shows how calendar year redundancies have been a feature of earnings for a composite of 26 large U.S. P&C carriers since 1995.

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4. Update: Sandy: As always, our immediate thoughts and concerns are with those directly affected by Sandy, both in North America, and across the Caribbean. Many areas along the East Coast, and the Caribbean, bear signs of unspeakable consequences from this historic storm. The death toll in North America is now at least 55 (including one in Canada), in addition to the 67 who died in the Caribbean last week.

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5. Thailand Flood 2011: Executive Summary: In 2011, Thailand experienced its worst flooding in years, leaving more than 800 people dead and causing severe damage across northern and central regions of the country. The floods, lasting a few months, severely damaged and disrupted manufacturing operations in Thailand. Flooding also forced seven huge industrial estates in central regions to close, causing damage to the industrial sector in the billions of U.S. dollars. It is interesting to note that prior to 2011, none of the industrial parks in Thailand had been flooded over the past 40 years.

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6. Risk Preference Function - Embedding Risk-Reward in Capital Allocation: Capital allocation decisions are among the most important decisions made by company management. Through our own research and thought leadership and our observance of best practices at clients around the world, Guy Carpenter’s Enterprise Risk Management Advisory practice has compiled a set of leading practices around capital allocation for (re)insurers.

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7. Baden-Baden Reinsurance Symposium Considers the Opportunities and Threats Created by Volatility: Guy Carpenter hosted “Volatility - Opportunity or Threat?” the Reinsurance Symposium held in Baden-Baden on October 21. The event examined how volatility is viewed within the insurance and reinsurance sectors, particularly from a financial perspective, and explored the potential which market turbulence can generate.

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8. Model Suitability Analysis (MSA)SM - Own Your View of Risk: The quantification of catastrophe risk through the use of numerical models is accepted routine in our industry. Given the large impact of catastrophe risk on (re)insurance portfolios it is no surprise that the methodologies used for such quantifications are becoming the subject of more intense scrutiny by regulators and risk managers. Whether the motivation is internal, external or both, efforts are now in full swing towards acquiring a deeper understanding and a more sophisticated use of catastrophe risk model results - the path to “own your view of risk.”

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9. Capital Models - What Lies Beneath: A robust capital model can be a great tool to help run a (re)insurance business. It is a given that capital models rely on a huge wealth of assumptions, and it is the quality of these assumptions that determine how useful the model is. There is an emphasis on those assumptions that are explicit, for example, catastrophe model outputs, premium rates and reserve volatility. But there is another type of assumption - that which is implicit. These assumptions can have a very material impact on the model results.

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10. Cold Spots Heating Up: Executive Summary: The succession of costly and global catastrophe losses over the last few years has had a wide-ranging impact on the (re)insurance sector. Since 2010, (re)insurers have been hit by powerful earthquakes in Chile, New Zealand and Japan, while devastating floods also caused widespread damage in Australia and Thailand. The exceptional cluster of global natural catastrophes in 2011 in particular emphasized increasing risk in emerging markets. The result has been unexpectedly expensive ‘cold spot’ losses in areas that were not considered as risky in the past.

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October 10th, 2011

GC Capital Ideas Top Stories: Third Quarter 2011

Posted at 1:00 AM ET

1. 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 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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2. Market in Transition at July 1, 2011 Reinsurance Renewals, According to Guy Carpenter: In the first quarter of 2011, the reinsurance sector’s dedicated capital position fell by 4.4 percent to about USD165 billion. In the second quarter, reinsurance capital remained essentially flat and moderately down year-to-date. While the global catastrophe losses of 2011 and the version 11 release of Risk Management Solutions, Inc.’s catastrophe model (RMS v11) have impacted reinsurers’ view of risk, the longer-term implications remain to be seen. This will come into sharper focus when recent event losses are fully realized and the industry reaches consensus on the integration of the model changes.

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3. Guy Carpenter Publishes First Industry Risk Benchmarks Report: Guy Carpenter & Company, LLC announced publication of its first Industry Risk Benchmarks report, which provides risk benchmarks for loss ratios and reserves, by line of business, for coefficient of variation (standard deviation/mean), correlation and cycles. The risk benchmarks are based on proprietary analyses of an extensive database of industry information that includes the reported financial results of hundreds of insurance companies over a thirty-year period. Insurers can use the benchmarks to assess the risk parameters that they use in economic capital models.

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4. Terror Attacks at Historically High Levels, Still Pose Threat to (Re)Insurance Industry, According to Guy Carpenter Report: A new report on global terrorism and the terror reinsurance market, released by Guy Carpenter & Company, finds that while recorded incidents of terror around the world remain at historically high levels and terrorism remains a serious risk to the (re)insurance industry, the industry continues to meet the current demands for terrorism risk transfer.

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5. Uncertain Market Ahead for Reinsurance Industry, Finds Guy Carpenter’s 2011 World Catastrophe Report: A number of developments in 2011 have created an uncertain market for the reinsurance industry as it begins to focus on next year’s renewals, according to 2011 World Catastrophe Reinsurance Market Report, released by Guy Carpenter & Company. These developments range from elevated global catastrophe activity to catastrophe model changes that have altered risk perceptions and changed expected loss amounts.

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6. Guy Carpenter Addresses Insurer Strategies for Profitable Growth At Monte Carlo Rendez-Vous 2011: In its fourth annual press briefing held at the Reinsurance Rendez-Vous 2011 in Monte Carlo, Guy Carpenter & Company identified and explored insurers’ opportunities for growth in today’s uncertain (re)insurance market.

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7. Chart: Guy Carpenter Global Property Catastrophe Rate on Line Index: Early predictions that January 1, 2011 reinsurance renewal rates were likely to fall have been proven correct. The Guy Carpenter Global Property Catastrophe Rate on Line (ROL) Index lost 7.5 percent - the second consecutive annual decline. Contributing to this move has been a combination of factors, including moderate loss activity and abundant levels of industry surplus.

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8. Focus on Hurricane Season at July 1, 2011 Reinsurance Renewal, Introduction and Catastrophe Events: July 1 represents the last major renewal period of the year. As we wrap up the majority of placements for 2011, there are several occurrences that have played a key role in the positioning of the market. Chief among the critical 2011 events are the global catastrophe losses and the release of RMS v11, both of which had an impact on reinsurers’ capital positions and views of risk. The longer term impact of both of these factors remains somewhat unclear as losses from recent events are not fully developed and there is not a consensus position on the integration of RMS v11.

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9. RMS Hurricane Model Update: RMS issued a significant update to its U.S. hurricane model, RiskLink, bringing material increases in risk estimates to many insurers with exposure to hurricane states. Early indications are that the average hurricane probable maximum losses (PML) for the industry will increase dramatically - by 20 to 25 percent. Regionally, the increases could be significantly higher.

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10. Chart: Cat Bond* Risk Capital Issued and Outstanding 1997 - 2011 Q2: The second quarter of 2011 saw four catastrophe bonds came to market, totaling USD592 million of new bond issuance.

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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/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., which is authorized and regulated by the Financial Services Authority. 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.

February 18th, 2011

Week’s Top Stories: Feb. 12 - 18, 2011

Posted at 10:00 AM ET

Chart: Sustainability of Loss Reserves: Historically, one of the “big cats” has been sector under-reserving, which served as the backdrop for the last hard market. Over the last four years, reserve releases have featured prominently in the reinsurance sector and have continued to do so up until the third quarter of 2010. The chart below shows the contribution to reserve releases on the Guy Carpenter Bermuda Reinsurance Composite combined ratios from 2005. It is notable that the benefit from reserve releases has ticked up in the first nine months of 2010 by one full percentage point, to 8.8 points on the loss ratio. This has occurred during a year when many projected reserve releases would diminish.

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Chart: Incurred But Not Reported Levels a Measure of Reserving Trends: A clue which could point to a shift in reserving trends may be evident in U.S. P&C industry percentage of first year incurred but not reported (IBNR) figures, which, all else equal, is a measure of reserving conservatism. In the chart below, a trend of potentially diminishing conservatism can be seen. It is significant that the industry is, in aggregate, back to levels of around 30 percent - levels previously seen in the last soft market.

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Chart: Price to Book Ratio of the Global Reinsurance Sector: The price to book ratio of the Guy Carpenter Global Reinsurance Composite is near twenty-year lows, or over two standard deviations below the long-term mean, at 0.91x. These low valuations have significant implications for reinsurance company managements with regard to company strategy and capital budgeting. They are also important considerations for financial flexibility and the potential for sector consolidation. The chart below plots the price to book ratio of the reinsurance sector from 1990 to the present day. The drop-off in the last decade has coincided with higher loss activity, falling interest rates, increased capital requirements and lackluster equity global valuations generally.

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Chart: Lloyd’s Market Capacity: Lloyd’s capacity for 2011 is expected to be broadly flat compared to 2010, as some syndicates lower capacity and others increase or enter the Market. Operating margins will be squeezed in 2011, although the overall Market profitability will remain driven by the catastrophe losses which may or may not be incurred.

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Top GC Capital Ideas Modeling Stories of 2010

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ExcEED Expectations for Deepwater Drilling Coverage: The Deepwater Horizon event is likely to cause insured losses of at least USD1.5 billion, if indemnities hold, and USD3-4 billion if they do not. There is unquestionably an increased focus among industry participants on the financial and social risks of deepwater drilling and production.

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February 16th, 2011

Chart: Sustainability of Loss Reserves

Posted at 1:00 AM ET

Historically, one of the “big cats” has been sector under-reserving, which served as the backdrop for the last hard market. Over the last four years, reserve releases have featured prominently in the reinsurance sector and have continued to do so up until the third quarter of 2010. The chart below shows the contribution to reserve releases on the Guy Carpenter Bermuda Reinsurance Composite combined ratios from 2005. It is notable that the benefit from reserve releases has ticked up in the first nine months of 2010 by one full percentage point, to 8.8 points on the loss ratio. This has occurred during a year when many projected reserve releases would diminish.

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January 6th, 2011

Chart: Typical Reinsurance Rate Changes by Business Segment, Jan. 1 , 2011

Posted at 1:00 AM ET

2011 renewal rates varied widely by business segment - yet most trended overall flat to negative to their levels last year. The only sectors with a clear upward bias were Marine & Energy and Credit, Bond & Political Risk.

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November 5th, 2010

Week’s Top Stories: October 27 - November 5, 2010

Posted at 10:00 AM ET

Reinsurance: An Efficient Source of Contingent Capital and Risk Protection: Insurers today are faced with challenges including lower pricing, long-term low interest rates and diminishing reserve redundancies, not to mention increasing natural catastrophe activity in peak risk zones such as Florida. Effective capital allocation and earnings protection are crucial to ensuring profitability and financial flexibility in this environment. The reinsurance purchasing decision is an integral aspect of both risk and capital management. In terms of risk, reinsurance protects insurers against peak or ‘extreme’ events, enabling them to continue providing cover in the wake of disasters. In terms of capital management, reinsurance is an efficient source of contingent capital that allows carriers to enter new business lines, satisfy changing regulatory requirements or simply maintain creditworthiness.

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Update: Hurricane Tomas: Tomas has continued to move in a westerly direction in the Caribbean Sea as a tropical storm over the last 24 hours. The storm is currently located approximately 355 miles (750 kilometers) south of Port-au-Prince in Haiti and packs sustained winds of around 50 mph (85 kmph), according to the National Hurricane Center (NHC). The storm is currently traveling in a westerly direction and a turn towards the west-northwest and then the northwest is expected over the next 48 hours. Forecasters said Tomas could re-intensify into a hurricane later this week. The NHC said tropical storm-force winds extend 115 miles (185 kilometers) from the center of the storm. Earlier, Tomas swept over islands in the eastern Caribbean as a category 1 hurricane on October 30, causing significant damage and power outages in Barbados, St. Lucia and St. Vincent and the Grenadines.

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Third Quarter 2010: P/C M&A Activity Update: 2010 has seen a modest level of property/casualty mergers and acquisitions activity through the third quarter of the year - far less than what Guy Carpenter expected to see going into the year. Twenty eight transactions with an aggregate deal value of almost USD3.2 billion have been announced and closed through the third quarter of 2010. This pace lags 2009 levels and is well off prior years’ activity.

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Coping with Solvency II: The timing of Solvency II regulations may create a “perfect storm” for insurers as they struggle to cope with challenging pricing and lower investment returns. Solvency II is expected to be finalized in 2011 and implemented by 2013. Under the Standard Formula, companies will be required to maintain more capital per unit of risk, encouraging diversification. Although these are good objectives in principle, they may compound an already difficult operating environment in the short-term.

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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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Protect Your Balance Sheet from Casualty Catastrophe Risk: Indications of an economic recovery and fairly flat renewal are already beginning to obscure the experience of the past year. For professional liability insurers, this is particularly disconcerting, for even as balance sheets grow stronger, the implications of the largest casualty catastrophe in more than 70 years are still unfolding. The lawsuits and claims may take years to resolve, suggesting that the effects of September 2008 will be with us for quite a while. As the situation develops, professional liability insurers should use what they learn to revisit accumulations in their portfolios and take action to protect their capital - and shareholder value - from future worldwide chain reactions of liability exposure.

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