Chris Klein, Global Head of Business Intelligence
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The Guy Carpenter Global Reinsurance Composite’s net income declined in the first quarter of 2010 compared with the same quarter in 2009. The companies comprising the group showed an aggregate net gain of USD1.4 billion, a decline of 31 percent from the first quarter of 2009. The primary driver was an increase in non-life underwriting losses.

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Donald Mango, Chief Actuary
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The profound financial damage that began last year has left the insurance industry looking for answers. Diligent underwriting and conservative investment strategies were not enough to prevent natural and financial catastrophes from bleeding balance sheets. Both firm leadership teams and key stakeholders have questioned the value of Enterprise Risk Management (ERM) frameworks, yet the conclusion that ERM failed may be hasty. After all, the insurance industry actually survived the events of 2008 reasonably well, with at least some of the credit going to their ERM efforts. Where risk management did fail, the underlying causes were deeper.

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Christopher Klein, Global Head of Business Intelligence
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Underwriting and investment gains contributed to a general increase in capital in the first half of 2009. Some reinsurers have even regained half or more of what they lost as a result of last year’s hurricanes and financial shocks. Financial market stability has opened several options unthinkable nine months ago, including share buybacks, dividends and even maintaining a bit of extra capital as a cushion — after all, it was the excess capital held at the beginning of last year that helped reinsurers withstand the effects of the financial crisis.

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John Major, ASA, MAAA, Senior Vice President, Instrat
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This paper, a sequel to chapter 2.6 of Guy Carpenter’s 2007 book, Enterprise Risk Analysis, illustrates some of the complex interactions between risk, capital strategy, and the optimal usage of risk transfer; and how critical decisions can be based on impact to (re)insurer value using Guy Carpenter’s Firm-Value Risk Model (FVRM) methodology.

Download The Firm-Value Risk Model >>

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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.

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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).

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