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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By David Priebe, Chairman of Global Client Development
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The climate change debate is likely to continue unabated well into the future. Even if it is not settled anytime soon, the debate itself has already begun to affect the (re)insurance industry. Risk-bearers deal in probability routinely, making climate change another likelihood to consider. In this manner, it has entered natural peril models, risk management assumptions, and risk transfer strategies. Consequently, climate change has become part of the (re)insurance lexicon, despite the fact that scientific, sociological, economic, and political authorities have not reached a universally accepted conclusion. The absence of a definitive answer does not preclude the use of climate change-related information in risk portfolio management.

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As third quarter results become available, Guy Carpenter will continue to update the Shareholders’ Funds Development chart. With the latest information, the analysis has not changed, indicating that the latest results are consistent with early insights.

To download this chart, right-click on the image, and select “Save Picture As”. If you have any trouble, please e-mail us.

As third quarter results become available, Guy Carpenter will continue to update the Changes to Shareholders’ Funds by Region chart. With the latest information, the conclusions have not changed, indicating that the latest results are consistent with early insights.

To download this chart, right-click on the image, and select “Save Picture As”. If you have any trouble, please e-mail us.

As third quarter results become available, Guy Carpenter will continue to update the Post-Tax Hurricane Exposures chart. With the latest information, the analysis has not changed, indicating that the latest results are consistent with early insights.

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As publicly traded (re)insurers continue to report their third quarter results, the impact of the ongoing financial catastrophe is becoming more noticeable. All three indices lost value over the past week. The S&P 500 Insurance Index, S&P Banks Index, and Dow Jones Euro Stoxx Insurance Index all saw declines in their weighted average book values, according to data from Bloomberg.

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Book Value Update: Earnings Announcement Impact: the erosion of balance sheets continues, as the effects of a global financial catastrophe spread across financial markets.

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Get Credit for Your ECM with S&P: Standard & Poor’s (S&P) has released a new framework for determining whether a carrier’s own ECM can receive partial credit in the S&P capital adequacy evaluation.

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Financial Catastrophes: No Storm, Plenty of Damage: throughout 2008, every major city in the world felt the reverberations of a “financial catastrophe,” triggered by the collapse of the subprime mortgage market.

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Uncover and Mitigate Product Liability Risk: Avert a Casuaty Catastrophe: 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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Defining the Value of Risk Management: the fundamental activity of risk-bearers has not been measurable, leaving a cloud of ambiguity in the middle of every carrier’s operation.

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Most Popular Keyword: asset impairment

And, you may have missed …

Alternatives to Alternative Capital: (re)insurers have come to expect that alternative sources of capital will always be available, but the well may be at risk of running dry.

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Shareholders’ Funds Development: For companies that have reported as of November 7, 2008, shareholders’ funds fell 16 percent year-to-date. The most drastic decrease occurred in the third quarter, which saw a 10 percent drop.

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Changes to Shareholders’ Funds by Region: European carriers have lost more (in percentage terms) than those in Bermuda and the United States, as traditionally higher weightings toward equities drove significant write-downs in the third quarter.

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Post-Tax Hurricane Exposures (as of 1H2008): Carrier after-tax hurricane losses, in terms of shareholders’ funds, varied for the first half of 2008. In cases where after-tax exposure is not disclosed, the pre-tax figure is used.

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Carrier after-tax hurricane losses, in terms of shareholders’ funds, varied for the first half of 2008. In cases where after-tax exposure is not disclosed, the pre-tax figure is used.

To download this chart, right-click on the image, and select “Save Picture As”. If you have any trouble, please e-mail us.