The National Flood Insurance Program (NFIP) is the primary underwriter of flood insurance policies in the United States. The program was established in 1968 through the passage of the National Flood Insurance Act.
Richard Banyard, Senior Vice President, Lance Finley, Managing Director, Jane Furnas, Senior Vice President and Scott VanKoughnett, Senior Vice President
Insurance policies are carefully drafted to outline coverage that is needed by policyholders while also specifying those areas where coverage is not expected to apply - the goal is to provide contract certainty, not in the usual sense of timeliness of contract signing, but from the perspective of specific policy language. Sometimes, however, contract certainty is not so certain. Recent examples have shown that insurers are increasingly facing reinterpretations of their policies by the judicial system, regulators, politicians and even the public via social media, all exerting pressure on insurers to provide coverage not previously anticipated by the drafters and underwriters of those policies. As these claims are presented to the reinsurance market, pressure is also put on reinsurers to provide coverage that they may not have originally contemplated. Insurers need to know that their reinsurers partner with them in such situations, and that reinsurance contracts provide appropriate flexibility to help ensure the reinsurers’ promise to pay. The comments made in this article are intended solely to foster discussion on this topic.
David Flandro, Global Head of Business Intelligence, Claude Lefebvre, Head of GC Analytics EMEA Region, Mark Shumway, Senior Vice President
Contact
Previous reports in our Succeeding Under Solvency II series focused on the capital requirements associated with Pillar I, corporate governance (Pillar II) and disclosure (Pillar III). In this briefing, the third in the series, we concentrate on special considerations for reinsurance and counterparty risk.
David Flandro, Global Head of Business Intelligence
Contact
Now that we are more than a month on from the Great Tohoku Earthquake, the (re)insurance industry can take advantage of hindsight to understand the implications of this tragedy and take steps to improve capital management for the future, in order to better protect cedents and original insureds. Of course, the situation remains fluid. New information continues to become available, and that will have a salient impact on the actions that (re)insurers take as a result of the catastrophe. Yet, there is some early information that carriers can use to manage their capital.
Christopher Klein, Global Head of Business Intelligence
Contact
Evolution of the Property-Catastrophe Reinsurance Market
This year’s 8 percent Guy Carpenter World ROL Index increase differs profoundly from the 65 percent surge that followed Hurricane Andrew and the 24 percent hike following the terror attacks of September 11, 2001 in the United States. Even after losing 18 percent of its aggregate capital following the 2008 financial catastrophe, reinsurers were unable to push for the high rates that some expected. The evolution of the reinsurance industry over the past two decades suggests that carriers have become much more adept at managing risk and capital, making it easier to absorb shock losses and manage the cost to transfer risk.
An industry defined by the transformative effects of shock losses changed again with Hurricanes Katrina, Rita, and Wilma and the 2006 reinsurance renewal - as combined insured losses reached USD60.5 billion. Despite the extent of the damage, these storms did not cause substantial losses of capital, as the rest of the property and casualty (P&C) insurance industry was highly profitable. The insurance industry as a whole recorded a combined ratio of 100.7 and a rate of return of 10 percent. Further, the reinsurance industry was no longer a closed system — external capital was readily available. More than USD35 billion flowed into the industry through a variety of instruments, including start-ups, catastrophe bonds, and sidecars.
Click here to receive e-mail updates from GC Capital Ideas >>
Ryan Ogaard, Global Head of Instrat®
The “black swan” is trumpeting! Last year, we saw the first-hand effects of random, unforeseen, and massive events. Catastrophe models — the tools we use to forecast disaster and protect capital — were shown to be quite fallible, leaving balance sheets exposed to more risk than carriers realized. Yet, maybe we’ve been a bit hasty in meting out blame. Catastrophe models have made great strides since they were first introduced, and our industry must continue to use them for a reason. What has emerged is an essential tension between the unknown and efforts to counteract it.
Aaron Bueler, Managing Director
Contact
Workers compensation reinsurance pricing remained fairly flat at the January 1, 2009 renewal. Rates on line (ROL) declined slightly for multi-claimant catastrophe programs, and rate reductions for single-claimant exposed programs were slight (if not flat). Reinsurers had sought to turn the tide of rate and ROL decreases of 10 percent or more over the last several renewals. Cedent goals, on the other hand, were to lower (or at most maintain) expiring rates on typically decreasing Subject Premium volumes for larger programs.
Christopher Klein, Managing Director
Contact
A late treaty retrocession renewal was characterized by reduced capacity and higher prices. Buyers grappled with uncertainty concerning their risk mitigation requirements, based on inward writings and an extremely limited market - especially for standard Ultimate Net Loss (UNL) retrocession protection. Although Hurricane Ike resulted in only a partial loss of limits by reinsurers (as with Hurricane Katrina), the retrocession market was unable to replenish balance sheets via sidecar capacity - as a result of the financial catastrophe. Consequently, the upward pricing reaction was more pronounced than in other sectors, and it was particularly difficult to find capacity for losses related to Hurricane Ike.
David Flandro, Senior Vice President
Contact
European reinsurers are focused on two critical issues: residual exposure to risky assets and effective capital deployment. This is a stark change from the past two years, in which the return of capital to shareholders was the dominant priority for many. The excess capital positions of the years following Hurricanes Katrina, Rita, and Wilma have diminished in the face of worldwide market losses, and cedents now have heightened focus on reinsurer counterparty credit risk.
