David Flandro, Head of Global Business Intelligence and Julian Alovisi, Senior Vice President
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As the terrorism threat has evolved, the (re)insurance industry has reacted and adapted. Certainly, the terror reinsurance market has changed significantly since 2001. Activity and pricing levels have generally fallen since the peak that occurred following the attacks of September 11, 2001 due to the absence of a major loss and supply/ demand imbalances. Regional differences exist, however, with activity in the United States clearly down while other markets have remained steady.

A recent Guy Carpenter & Company, LLC survey of reinsurance underwriters improved our understanding of the terrorism reinsurance market. The findings were consistent with our beliefs and offered additional insights that are significant and encouraging. 

The dynamic nature of terrorism requires a different underwriting approach, and Guy Carpenter will continue to offer advice and solutions to help insurers manage their terrorism exposure.

Terrorism - Reinsurers Standing By, Part I: Introduction »

Terrorism - Reinsurers Standing By, Part II:  Risks, Threats and Exposures »

Terrorism - Reinsurers Standing By, Part III: Terror Reinsurance Market»

Terrorism - Reinsurers Standing By, Part IV: Terrorism Analytics and Rating Agency Requirements »

Terrorism - Reinsurers Standing By, Part V: Conclusion

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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.   

David Flandro, Head of Global Business Intelligence and Julian Alovisi, Senior Vice President
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This series has shown that terrorism remains a constant and real risk. Although more
effective counter-terrorism measures have frustrated al-Qaeda’s ability to plan largescale attacks since the events of September 11, 2001, global recorded terror incidents are at historic highs. The emergence of individuals or autonomous groups aligned to the aims of al-Qaeda continues to threaten the developed world, especially as insurgents are able to operate in unstable countries such as Pakistan and Yemen.

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David Flandro, Head of Global Business Intelligence and Julian Alovisi, Senior Vice President
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To support the process of managing and underwriting the terrorism peril, (re)insurers
are increasingly using tools to analyze the risk. The dynamic nature of terrorism, and
the uncertainty in identifying the targets and frequency of attacks, requires a different
approach to manage the risk.

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David Flandro, Head of Global Business Intelligence and Julian Alovisi, Senior Vice President
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Terror reinsurance markets have generally trended downward in activity and overall pricing since peaking during market conditions following the attacks of September 11, 2001 in 2002-2004. The dynamic being played out in the terrorism reinsurance market is not unlike other low-frequency, high-severity lines where a combination of the passage of time, the lack of further market defining loss events and constrained reinsurance budgets converge to allow the market to drift gently downward from supply/demand imbalances. On the surface, it would seem that lower pricing over time would increase activity levels, but interestingly we see simultaneous lower prices and lower activity levels.

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David Flandro, Head of Global Business Intelligence and Julian Alovisi, Senior Vice President
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The threat posed by terrorism has changed significantly since the catastrophic events of September 11, 2001, but it remains a constant and serious risk with global recorded terror incidents at historic highs. The nature of the risk is wide-ranging, with many countries threatened by international groups and domestic terrorism. Certainly, the threat posed by fundamentalist Islamic terrorists has changed a great deal since 2001. For insurers with terrorism risk on their books, it is important to understand how the terrorism threat has evolved, the varying risks in different regions and what developments are likely in 2010 and beyond.

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David Flandro, Head of Global Business Intellience and Julian Alovisi, Senior Vice President
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As we approach the ninth anniversary of the September 11, 2001 attacks, the threat from terrorism continues to pose a risk to the (re)insurance industry. The nature of the threat has changed since 2001, but terrorism remains a constant and serious risk with global recorded terror incidents at historic highs. Terrorist organizations operating in unstable countries present a danger to the world, and the recent flurry of terrorist activity serves as a reminder that individuals and groups remain a serious threat.

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Financial Intelligence Team
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The link between a company’s earnings and its share price is intuitive and well documented. Equally logical, although far less studied, is the correlation between the volatility of earnings and share price. The favorable impact of stable earnings on market valuation is intuitive considering market capitalization represents a view of future discounted cash flows and unexpected earnings volatility reduces the predictability of those cash flows.

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Financial Intelligence Team
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In April 2009, Guy Carpenter’s Financial Intelligence Team published a briefing entitled Risk Profile, Appetite and Tolerance: Fundamental Concepts in Risk Management and Reinsurance Effectiveness. That briefing included definitions of Risk Profile, Appetite and Tolerance and how these concepts fit into an Enterprise Risk Management (ERM) framework. It also presented the results of our initial Risk Tolerance Benchmarking study, which summarized the information publicly disclosed in this area.

Download the briefing as a PDF >>

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Financial Intelligence Team
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CP31 sets out the principles an entity must adhere to in order to allow the recognition of financial mitigation techniques (e.g., financial derivatives) for Solvency Capital Requirement (SCR) purposes. It states the capital requirement should allow for an appropriate reduction to reflect the mitigation techniques in place while avoiding allowing deductions based on inappropriate mitigation techniques.

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Financial Intelligence Team
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Special purpose vehicles (SPVs) are used to transfer insurance risks to the capital markets. This document addresses the authorization, regulatory requirements, and scope of supervisory review of SPVs under Solvency II. The requirements refer only to SPVs domiciled in the European Economic Area (EEA); SPVs established outside the EEA are not subject to the rules discussed in this paper.

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