Chris McKeown, CEO of Global Analytical and Specialty Practices
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Those who invest in and prioritize research and development — and introduce new tools and ideas — benefit from more than just the prestige of being first. Early movers define the standard to which others will have to adapt later. They shape the development of innovation, and thus its evolution, as it moves from a radically new idea to an accepted marketplace practice. In possessing this control, they hold the upper hand over their competitors, which become weighted with the burdens of the catch-up clamor.

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David Lewin, Managing Director
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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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Emil Metropoulos, Senior Vice President
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Some casualty risk accumulations stay hidden, but this doesn’t mean your exposure disappears. A single event could trigger a chain reaction of insured losses on professional and product liability covers, depleting your capital and possibly destroying shareholder value. In extreme cases, even solvency could be threatened. Using Guy Carpenter’s Casualty Cat model, developed jointly with Arium, Ltd., it’s possible to identify some of these “casualty catastrophe” risks early — before they drain your balance sheet.

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Part I: Clashing and Catastrophic Events: Remoteness has been used to downplay the threat, causing carriers to overlook a more immediate, though less menacing, concern. A substantial loss may not imperil company operations, but it could lead to an unexpected earnings hit, the effects of which would be magnified for shareholders. Unanticipated large losses typically result in a disproportionate impact on market capitalization. Casualty clash and catastrophe protection, consequently, can be a vital tool in managing overall financial performance.

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Part II: Age of Casualty Catastrophe Risks: The global financial crisis that has unleashed havoc on credit and equity markets is the most recent casualty catastrophe (with both systemic and classic clash characteristics), and it may be the largest in recent memory … but it certainly isn’t the first. In fact, there have been many, and their frequency has increased over the past two decades, allowing financial markets little reprieve from one disaster to the next.

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Part III: Renewed Interest in Casualty Clash Reinsurance: Perhaps because of market conditions last year — and a general increase in awareness — larger insurers paid more attention to casualty clash and catastrophe risk at the Jan. 1, 2009, reinsurance renewal. This followed several years in which they did not secure much protection. Even with the increase in interest in this form of cover, capacity was adequate, and pricing remained stable. Historically, product availability, terms and pricing prevented the widespread purchase of protection. Since many of these cedents now have larger net lines on their portfolios — and plenty of available reinsurance capacity — they are beginning to secure the protection they need. Changes in capital availability and terms have helped cedents.

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Part IV: Casualty Clash and Catastrophe Renaissance: We are surrounded by casualty clash and catastrophe risk. Especially in today’s interconnected and turbulent business environment, these threats can pervade a large insurer’s portfolio, imperiling balance sheet strength and shareholder returns. For the past 20 years, we have seen the rapid escalation of casualty clash and catastrophe risk, and the trend is unlikely to abate. If anything, it will gather more momentum. Consequently, we may be on the brink of a casualty clash and catastrophe renaissance, to be fueled by the capital management agendas of large casualty writers that need to address a lingering, concealed exposure that has long been elusive.

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Emil Metropoulos, Senior Vice President
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We are surrounded by casualty clash and catastrophe risk. Especially in today’s interconnected and turbulent business environment, these threats can pervade a large insurer’s portfolio, imperiling balance sheet strength and shareholder returns. For the past 20 years, we have seen the rapid escalation of casualty clash and catastrophe risk, and the trend is unlikely to abate. If anything, it will gather more momentum. Consequently, we may be on the brink of a casualty clash and catastrophe renaissance, to be fueled by the capital management agendas of large casualty writers that need to address a lingering, concealed exposure that has long been elusive.

Continue reading…

Emil Metropoulos, Senior Vice President
Contact

Perhaps because of market conditions last year — and a general increase in awareness — larger insurers paid more attention to casualty clash and catastrophe risk at the Jan. 1, 2009, reinsurance renewal. This followed several years in which they did not secure much protection. Even with the increase in interest in this form of cover, capacity was adequate, and pricing remained stable. Historically, product availability, terms and pricing prevented the widespread purchase of protection. Since many of these cedents now have larger net lines on their portfolios — and plenty of available reinsurance capacity — they are beginning to secure the protection they need. Changes in capital availability and terms have helped cedents.

Continue reading…

Emil Metropoulos, Senior Vice President
Contact

The global financial crisis that has unleashed havoc on credit and equity markets is the most recent casualty catastrophe (with both systemic and classic clash characteristics), and it may be the largest in recent memory … but it certainly isn’t the first. In fact, there have been many, and their frequency has increased over the past two decades, allowing financial markets little reprieve from one disaster to the next.

The stock market crash of Oct. 19, 1987, kicked off the modern casualty catastrophe age. The Dow Jones Industrial Average lost 22 percent of its value, earning the event the appellation “Black Monday.” Since then, we have endured the initial public offering (IPO) laddering and equity analyst scandals associated with the “dot-com bubble,” as well as accounting irregularities at Enron, Tyco, WorldCom, Adelphia and others. The loss of shareholders’ wealth with each of these events was profound, but none has been as severe as the one that currently has the world’s financial markets in its grasp.

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Emil Metropoulos, Senior Vice President
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Remoteness has been used to downplay the threat, causing carriers to overlook a more immediate, though less menacing, concern. A substantial loss may not imperil company operations, but it could lead to an unexpected earnings hit, the effects of which would be magnified for shareholders. Unanticipated large losses typically result in a disproportionate impact on market capitalization. Casualty clash and catastrophe protection, consequently, can be a vital tool in managing overall financial performance.

Continue reading…

David Lewin, Head of the European Casualty Specialty, discusses casualty catastrophes and Guy Carpenter’s innovative Casualty Cat model, developed in conjunction with Arium, Ltd., in this new GC Capital Ideas podcast. Click the audio player below to listen to the interview, or download the interview in a file that will work with your iPod.

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Click here to download an iPod-compitable version of the interview >>

Casualty Cat Part I: Casualty Catastrophe Risk Modeling >>

Casualty Cat Part II: Tracking Integrated, Intricate Risks >>

Casualty Cat Part III: Enterprise-Wide Evaluation >>

Casualty Cat Part IV: Casualty Cat Exposes Exposure >>

Casualty Cat Part V: Case Study >>

Casualty Cat Part VI: Enterprise Protection, Capital Optimization >>