Guy Carpenter & Company, LLC hosted “Capital Creativity — the Road to Renewals,” the Baden-Baden Reinsurance Symposium held in Baden-Baden on October 25. The event focused on the effective management of capital in the (re)insurance industry.The symposium was moderated by Chris Klein, Global Head of Business Intelligence at Guy Carpenter. Henry Keeling, President and CEO of International Operations at Guy Carpenter, provided the opening remarks, followed by presentations from Luzi Hitz, CEO of PERILS; Clemens von Weichs, CEO of Allianz SE, Reinsurance Division; and Victor Peignet, CEO of SCOR Global P&C. Wolfgang Gerstner, Lord Mayor of the City of Baden-Baden, welcomed attendees to the city.

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GC Securities, a division of MMC Securities Corp.*
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The third quarter is traditionally quiet for the catastrophe bond market, and 2009 was no exception. Two transactions were closed, resulting in USD412 million in new risk capital.¹ 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.

• Issuance Activity
• Catastrophe Bond Redemptions
• Risk Capital Outstanding
• Issuance Composition
• Industry Loss Warranties
• Outlook for the Fourth Quarter

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GC Securities, a division of MMC Securities Corp.*
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Six catastrophe bond transactions were completed in the second quarter of 2009, with USD808 million in risk capital coming to market. The number of bonds issued is down 25 percent year-over-year (from eight last year), and risk principal issued is off 54 percent from the USD1.75 billion issued during the second quarter of 2008. For the first half of the year, nine catastrophe bonds were issued, generating risk capital of USD1.38 billion. The first half of 2008 was more robust, with 11 transactions resulting in USD2.4 billion issued. From the first half of last year to the first half of this year, risk capital issued declined 42.5 percent, due in part to pricing conditions.

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Record Number of Guy Carpenter Brokers Selected in 2009,
Accounting for More Than Half of All Industry Honorees

An unprecedented 29 members of Guy Carpenter & Company, LLC’s global broking team have been selected to Risk & Insurance magazine’s 2009 “Reinsurance Power Brokers” list, the highest number among all reinsurance intermediaries. The annual Power Brokers directory, now in its third year, honors individual reinsurance brokers for creativity in solving clients’ risk management issues, depth of practice or line-of-business expertise, and superior client service.

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GC Securities, a division of MMC Securities Corp.*
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The catastrophe bond market continues to advance, though issuances are down from 2008. The activity represents a positive rally from the hiatus during the second half of 2008. For the first half of 2009, nine bonds have been issued, with aggregate risk capital of USD1.38 billion. The continuing stabilization of financial markets and a decrease in catastrophe bond spreads, however, could result in more issuance activity in the second half of the year, particularly for sponsors which had considered issuances in the first and second quarters but deferred their plans because catastrophe bond spreads were considered to be too wide (i.e., catastrophe bond protection was considered to be too expensive).

• Issuances and Redemptions
• Total Risk Capital Outstanding
• Pricing and Capacity
• Second Quarter Issuance Composition
• Pipeline
• Collateral Solutions and Alternatives
• Industry Loss Warranties

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PERILS AG, an independent Zurich-based company, has been established to aggregate and provide industry-wide European catastrophe insurance data as a subscription service. The aggregated data sets will be derived from data voluntarily provided by European-based insurers.

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Christopher Klein, Managing Director
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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.

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Shaun Scade, Managing Director
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The non-U.S. personal accident (PA) market was not isolated from the effects of the global financial catastrophe. The January 1, 2009 renewal was framed by discussions concerning the cost of capital, liquidity, and investment returns. Reinsurers generally initiated these conversations with the hopes of using asset impairment issues to secure better pricing. Nonetheless, cedents were able to resist rate increases-for some lines, rates even dropped slightly.

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Global Reinsurance Review January 2009

Reinsurance rate increases were moderate on average at the January 1, 2009 renewal. The Guy Carpenter World Rate on Line (ROL) Index rose 8 percent, in response to the dual pressures of a financial catastrophe and the second most expensive property catastrophe year on record. The degree to which prices increased was tempered by large capital positions at the beginning of 2008, enabling carriers to absorb the year’s losses, but this is where the generalizations end. Loss history, geography, and line of business led to wide differences in pricing. Expectations of another above-average storm year and the uncertainty surrounding the credit crisis underscore the need for continued capital management discipline in the coming year.

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Mark Hewett, Chairman of London Operations
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For several years, carriers have enjoyed a period of low insured losses, and access to cash has not been a problem. Traditional sources have been bolstered by the largesse of hedge funds, private equity funds, and even the wealth of high-net worth investors through a variety of insurance-linked securities (ILS). But, credit market turmoil has brought these conditions to an unceremonious close.

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