As third quarter results become available, Guy Carpenter will continue to update the Change in Equity chart. With the latest information, the analysis has not changed, indicating that the latest results are consistent with early insights.
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Unrealized losses, share repurchases, and dividends combined to drive aggregate shareholders’ funds for the Guy Carpenter Reinsurance Composite 16 percent lower for the year by September 30, 2008. Net income was modest, heavily impaired by realized losses.
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David Priebe, Chairman of Global Client Development
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Earlier this year, the (re)insurance industry celebrated an abundance of capital. Buybacks and dividends were common, as carriers struggled to find productive uses for their extra cash. Only a few months later, we are in the midst of a financial catastrophe that is wreaking havoc on balance sheets and constraining carrier access to capital. And, the situation could worsen. A major catastrophe event could place substantial demands on (re)insurer capital in a climate where replenishment would be both time-consuming and costly.
Joan Lamm-Tennant, Global Chief Economist and Risk Strategist
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Excess capital is only excessive until you need it. Throughout the year, carriers have struggled to find uses for capital that has not seemed necessary, given the benign loss years that followed the 2005 storm season. Rates are down, retentions are up, and repatriation has been continual. Market conditions have overshadowed analytics in determining carrier behavior. But, aggressive repatriation may have been hasty. Looking to the future, buyback and dividend decisions could benefit from Enterprise Risk Management (ERM).
