Eric Paire, Head of Global Partners & Strategic Advisory, EMEA

Contact

“To remain competitive, smaller companies simply cannot afford to operate at 200 percent. This volatility on multiple fronts means that establishing the solvency level that will provide a sufficiently robust capital buffer to withstand these fluctuations is extremely difficult. Is it 130 percent, 150 percent, 170 percent or higher?” notes Eric Paire, Head of Global Partners & Strategic Advisory, EMEA at Guy Carpenter.

Continue reading…

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.

Continue reading…

David Priebe, Vice Chairman and Cory Anger, Global Head of ILS Origination and Structuring at GC Securities*

Contact

“Historically, traditional reinsurers increase their premium rates after industry catastrophe events in order to replenish capital and attract new capital, with the goal of reaching overall premium rate adequacy and restoring returns on equity to levels more consistent with what is expected of equity capital,” David Priebe, Vice Chairman at Guy Carpenter, explains. “However, GC Securities has found that significant pricing increases will be difficult to sustain for short periods because of the inflow of new capital that typically follows catastrophe events. Alternative capital is already making contingency plans with funds created so that they can inflow new capital rapidly post-event. The difficulty in sustaining price increases means that premium rate adequacy is even more critical in soft markets when capital is abundant. (Re)insurers need to evolve by reassessing business models for more efficient allocation of risk to capital sources.”

Continue reading…

David Priebe, Vice Chairman and Cory Anger, Global Head of ILS Origination and Structuring at GC Securities*

Contact

Industry Must Adapt to Emerging Segmentation Phase

Pricing declines continued in the insurance-linked securities (ILS) segment of alternative capital. In turn, this has prompted questions about the sustainability of lower pricing and capacity post-catastrophe event, suggesting that traditional reinsurers’ models and the traditional reinsurance and alternative capital mix of capital sources still need to evolve. Maintaining premium rate adequacy and stable capacity requires better access to the expanding sources of capital and awareness of the benefits of better risk syndication and segmentation, according to David Priebe, Vice Chairman at Guy Carpenter and Cory Anger, Global Head of ILS Origination and Structuring at GC Securities.

Continue reading…

Emma Karhan, Managing Director

Contact

Insurance is about the pooling of risk and providing support for impacted economies. Expanding insurance coverages to achieve these objectives against terror losses requires a more granular level of insight into the impacts of terrorist attacks. We have a relatively high level of loss impact knowledge for mature lines of business, such as property catastrophe coverages; this has been driven by losses and the ensuing needs for modeling and pricing improvements. However, the terrorism market is a less mature market that has not suffered a frequency of significantly large insured losses that would otherwise assist in a better understanding of the nature of the peril and its direct and indirect impacts on an economy. Additionally, this peril has the added complexity of unpredictable behavioral factors of terrorists that are very difficult to sensibly and consistently be included in pricing models. Consequently, the (re)insurance industry needs to devise improved transparency through innovative modeling and pricing methodologies to ensure that capital continues to support this line of business - underpinning further product development.

Continue reading…

Cory Anger, Global Head of ILS Structuring, GC Securities*

Contact

Public entities’ use of capital markets-based risk transfer capacity for the assumption of natural disaster losses, such as the cost of emergency relief and infrastructure and property damage has demonstrated success in de-risking public sector balance sheets. Capital markets innovators are beginning to leverage the outcomes achieved in the natural disaster sphere to other types of public sector severity losses, notably pandemic diseases. The capital markets may help fund resources to rapidly contain the spread of a pandemic, share the burden of associated medical expenses and/or manage the financial impact of the higher mortality rates.

Continue reading…

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.

Continue reading…

Chart highlights the result of a survey taken of 107 insurance and reinsurance professionals conducted by Guy Carpenter at the 2016 annual meeting of the Property Casualty Insurers Association of America when asked which capital sources they will utilize more of in 2017.

Continue reading…

The obvious response to the issues emerging risks provide is to make sure reserves and capital position are more than robust enough for any eventuality - however remote - and then release them when the risks fail to materialize. But, there are many arguments against this as a practical strategy:

Continue reading…

The chart below attempts to illustrate the solvency calculation issue. Suppose the best estimate is 20 and the assessment from modeling is that the 1-in-200-year ultimate loss is 100. If all else stays the same and with the simplifying assumption that the yield curve stays flat, one can say that the sum of the 1-year solvency capital requirements (SCRs) approximated the difference between 100 and 20 (i.e. 80). Yet, because of the discounting, when in time the change in own funds is recognized, is important. The black line represents a linear recognition pattern so the 1-year SCRs are all equal with increments of 10. The blue line represents a Binary Fast recognition so the first year SCR is 80 and the remaining years’ SCR are zero. This means that the deterioration is recognized quickly. The red line again shows binary recognition but with a slow pattern as the movement is only occurring toward the end of the liabilities’ life. The two curves in light blue and light red represent less severe versions of the binary forms.

Continue reading…