Andrew Marcell, CEO — Americas Broking Operations
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Capital management discipline has guided the (re)insurance industry through a turbulent year. Volatile financial markets, capital constraints and general uncertainty caused many carriers, a year ago, to fret over the coming renewal and the availability of capacity. Some were calling for sharp increases in reinsurance rates, and concerns of a capital shortfall were widespread. As we have seen, however, this did not occur. Despite the calamity visited upon the global financial services industry, (re)insurers have persevered, and the coming renewal is likely to be notable for its stability.

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John Tedeschi, ACAS, MAAA, Managing Director and Chief of Catastrophe Modeling
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Insurer and reinsurer reliance on catastrophe models has become part of the fabric of risk management. Though they provide guidance rather than specific courses of action, these tools help carriers quantify risk and deploy their capital as effectively as possible. But, every catastrophe model has specific strengths and weaknesses, which is why risk-bearers tend to use several of them to evaluate exposures. The final decisions on whether to cover a particular risk are shaped by loss history, company objectives, and risk manager judgment. As a result, models are crucial to (re)insurer success … as long as they are used properly.

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Christopher Klein, Global Head of Business Intelligence
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Reinsurance rates increased by 8 percent through the 2009 reinsurance renewals, as measured by the Guy Carpenter World Catastrophe Rate on Line (ROL) Index. Upward pressure came largely from the impact of the 2008 financial catastrophe on reinsurers’ balance sheets, which was exacerbated by the effects of Hurricanes Gustav and Ike. At the January 1, 2010 renewal, reinsurance rates are likely to show little movement, unless a major property catastrophe or financial shock occurs.

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John Tedeschi, ACAS, MAAA, Chief of Catastrophe Modeling
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A week after Rendez-Vous ended last year, Hurricane Ike ripped through the Gulf of Mexico, devastated Galveston, Texas, and even caused considerable inland damage. Immediately, (re)insurers noted that losses would be high … but they did not expect to spend more than half a year continually revising their estimates upward. Many carriers began to look back on the storm and question their catastrophe models, wondering how a storm of much magnitude (at least from a financial perspective) could be missed. While the models themselves do bear some responsibility, the enduring lesson is likely to be the role of the risk manager in using them. After all, people — not technology - make decisions about risk and capital.

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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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Michelle Harnick, Managing Director
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The 2009 hurricane season is expected to be moderate, but that’s no reason to let your defenses down. In setting your expectations for the coming months, it pays to consider severity as well as frequency. Most major forecasts address the number of storms anticipated — but they don’t account for severity. A mild Atlantic hurricane season could still trigger outsized insured losses, and an exposed (re)insurer could feel the shocks on its bottom line, return on equity (ROE) ratio, and even market capitalization.

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John Tedeschi, ACAS, MAAA, Managing Director and Chief of Catastrophe Modeling
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It has taken many months for the (re)insurance industry to digest the effects of Hurricane Ike and its impact continues. One of the largest natural catastrophes in history in terms of insured losses, the Gulf of Mexico storm was in part overshadowed by the simultaneous financial catastrophe that struck business centers around the world. The implications of both emerged at the same time, as risk managers sought to keep pace with damage to both the asset and liability sides of the balance sheet.

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Mike Van Slooten, Senior Vice President
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Lloyd’s of London (”Lloyd’s”) competitive position strengthened in 2008, largely because of effective risk management oversight and relatively conservative investment allocation. The capital structure has proved resilient in the face of the worldwide financial catastrophe and financial strength ratings remain strong and stable. As a result, Lloyd’s is well-positioned to benefit from current market dislocation.

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Underwriting performances for all classes other than Marine weakened in 2008, with Property, Casualty, Energy, and Aviation reporting technical losses before releases from prior year reserves. The Energy result was particularly poor, reflecting significant Hurricane Ike losses in the Gulf of Mexico.

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The 2008 accident year combined ratio stood at 103.2 percent (90.5 percent in 2007) but improved by 2.7 points to 100.5 percent after GBP370 million (USD688 million) of exchange gains on non-translation of non-monetary items (which will reverse in 2009). A further 9.2 points from GBP1.3 billion (USD2.4 billion) of reserve releases, mainly on the 2002-to-2006 years, brought the calendar year combined ratio down to 91.3 percent. Lloyd’s has indicated that, prior to exchange effects, the level of redundancy was in line with 2007’s GBP856 million (USD1.6 billion), but will fall from last year’s peak.

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