David Priebe, Chairman of Global Client Development *
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The third quarter is usually quiet for the catastrophe bond market, and 2009 was consistent with past years. Issuers completed two transactions, bringing USD412 million in risk capital to the market. Nonetheless, risk capital issued was up by a third relative to the same quarter last year, as both catastrophe bonds issued were upsized considerably. The consensus estimate for the entire year remains USD3 billion to USD4 billion, implying a strong fourth quarter for primary issuance.

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David Priebe, Chairman of Global Client Development
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A year ago, (re)insurers’ access to capital markets was in doubt. A worldwide financial crisis decimated balance sheets, sent equity values tumbling and caused credit markets to come to a standstill. Today, however, the situation has changed completely. Catastrophe bond issuances have resumed, and the mergers and acquisitions (M&A) market is gaining momentum. (Re)insurers are turning to capital markets to address a wide range of strategic and tactical needs. It is clear that this source of capital remains both viable and reliable.

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David Priebe, Chairman of Global Client Development
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The role of capital markets in the (re)insurance industry was uncertain a year ago. The eruption of the financial catastrophe within weeks of last year’s Rendez-Vous caused credit markets to seize and wreaked havoc on equities. Access to capital not in the reinsurance system already effectively closed. Today, however, the situation is vastly different. Financial markets are thawing, and equity values are coming back. Investors are showing more confidence in insurance risks — both directly, through catastrophe bonds, and indirectly, via equity markets. Mergers and acquisitions (M&A) are gaining momentum, as well. We’ve pierced last year’s cloud of pessimism, and the opportunities ahead are quite clear.

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As Industry Rebounds from Financial Crisis, Disciplined Capital Management and Decision-Making Remain Paramount

Contents

• Press Release
• Audio Replays/Podcasts
• Photo Gallery

Guy Carpenter & Company, LLC hosted a press briefing at Rendez-Vous in Monte-Carlo on September 5, 2009, focusing on the return of capital to the reinsurance market.

Brian Duperreault, President and Chief Executive Officer of Marsh & McLennan Companies, Inc., opened the briefing. Peter Zaffino, President and CEO of Guy Carpenter, then led a panel of Guy Carpenter executives that included Vice Chairman Richard Booth, Henry Keeling, President and CEO of International Operations, Chris Klein, Global Head of Business Intelligence and David Priebe, Chairman of Global Client Development.

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David Priebe, Chairman of Global Client Development, Guy Carpenter, reviews the capital markets activity of 2009 — particularly catastrophe bonds* and mergers and acquisitions — at Monte Carlo Rendez-Vous in this 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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* 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 Priebe, Chairman of Global Client Development
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A tumultuous market is beginning to show signs of calm. After more than nine months of financial market volatility — and uncertainty as to reinsurance rates — we are looking back on three relatively stable renewals and a full quarter of financial results. Many forecasted the worst last September, and now, we’re seeing that insurers and reinsurers have been able to adapt to a capital-constrained environment. Slowly, earnings are recovering, and capital is becoming available — both of which are keeping reinsurance rate increases under control. This is the result, however, of a precarious balance between supply and demand, one which could be disrupted by a shock to the marketplace.

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First-Ever State Windpool Cat Bond Transaction Provides
Per-Occurrence Ultimate Net Loss Protection for North Carolina Hurricane Peril

Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist, and GC Securities, today announced the completion of a $200 million issuance from a new 144A catastrophe bond program, Parkton Re Ltd., a Cayman Islands exempted company, to benefit the North Carolina Joint Underwriting Association and the North Carolina Insurance Underwriting Association (collectively the NC JUA/IUA). This program is the first-ever 144A catastrophe bond program to be established for the benefit of a state’s residual market pool to manage its hurricane risk.

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Guy Carpenter hosted (re)insurance industry executives from the western region of the United States on March 4 for a two-day event to discuss the challenges of managing risk and capital in a precarious economic climate. The event, “Shelter from the Storm: Managing Risk and Capital in Rough Seas,” included presentations by some of Guy Carpenter’s leading thinkers on issues from the cost and availability of capital to the effectiveness of models and the advantages of implementing an Enterprise Risk Management (ERM) framework. Ultimately, all discussions pointed back to the one crucial issue that cedents and markets will face in 2009: how to protect their balance sheets from the dual risks of financial and insured losses.

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David Priebe, Chairman of Global Client Development
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The catastrophe bond year ended back in July, and two quarters of virtual silence have signaled an abrupt change in the market. After 2006 and 2007, we had become accustomed to record-setting issuance years. Hopes were high for 2008, which was on track with the previous year through the beginning of the third quarter. Then, everything just stopped. Given how 2008 progressed, we cannot judge the catastrophe bond market as we would in a normal year. A worldwide financial meltdown affected the insurance and reinsurance industry deeply, creating conditions that will make 2009 unpredictable. Nonetheless, catastrophe bonds did demonstrate their resilience, indicating their likely importance this year.

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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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