Executive teams adapting to the changing dynamics of the specialty insurance and global reinsurance markets in an environment of excess capital, growing influence of convergence participants, low investment returns and diminishing reserve releases are presented with a series of strategic dilemmas and opportunities.
Posts Tagged ‘investment’
Here we bring together recent GC Capital Ideas’ posts that have focused on the BRIC (Brazil, Russia, India and China) countries.
Increased Flood Loss Potential: Making use of all available tools and practicing comprehensive exposure management will both strengthen (re)insurers’ ERM practices and allow them to make informed risk management and reinsurance decisions as they enter new markets. Certainly, flood risk is prevalent and increasing in almost every developing economy.
Lloyd’s: What Will Success Look Like? If Lloyd’s is successful in achieving the growth and diversification outlined in its near-term and long-term strategic plans, it can expect to capitalize on business opportunities in emerging market economies such as the BRIC countries (Brazil, Russia, India and China). Growth, however, will not necessarily be limited to these markets. Other countries in Southeast Asia, Eastern Europe and Latin America are experiencing strong growth and increasing insurance penetration, and these territories also present attractive opportunities for Lloyd’s.
Growth Potential in Developing Markets: Positive premium growth trends in developing markets are expected to be sustained over the next decade. During this time, emerging markets are expected to drive global economic growth, and foreign direct investment in these emerging regions is likely to increase. In Brazil alone, investment in infrastructure is expected to amount to USD550 billion over the next few years as the country prepares to host the soccer World Cup in 2014 and the summer Olympics in 2016. China and India too are expected to continue to see robust growth in the next ten years.
State of the Reinsurance Market, Part II: Inflation/Deflation Expectations, Investment Returns: Expansionary monetary policy has fueled concerns that inflation could increase in the medium term, but the picture is less clear in the near term. While consumer price indices in Brazil, Russia, India and China (BRIC), the United States and the rest of the G7 currently exhibit positive trends, consensus forecasts show borderline disinflationary trends in the nearer term in the United States and many developed markets.
Guy Carpenter today announced the release of MetaRisk® 7.1, the latest version of the firm’s premier risk and capital management decision making tool. The platform offers access to a variety of new features and enhancements that will improve usability, increase overall functionality and enable the development of more accurate and efficient risk and capital models.
A new capital management paradigm is challenging the traditional reinsurance model. Historically, significant market losses from major catastrophic events and low investment yields were a catalyst for an improved rate environment. Faced with current economic conditions, reinsurers are finding it more difficult to generate adequate returns in excess of their cost of capital, and are seeing an increased competitive threat from alternative capacity from the capital markets. New money appears to be more permanent and therefore limits the firmness and duration of any improved rate environment. Catastrophe bonds, sidecars, structured industry-loss warranties and collateralized reinsurance vehicles are among the alternative market options. Hedge funds are also playing a more active role, with a couple of major names setting up reinsurance operations in Bermuda.
As the insurance industry readies itself for January 1 renewals, expansion into new geographic markets and new product development will be the primary drivers of profitable growth, according to a new survey released today by Guy Carpenter.
David Flandro, Global Head of Business Intelligence, Julian Alovisi, Assistant Vice President and Lucy Dalimonte, Senior Vice President
Although (re)insurers’ investments in higher-grade fixed income securities have calmed nerves for now, it is only logical to expect an increase in interest rate sensitivity for portfolios with lower yields to maturity. This creates the potential for negative balance sheet impacts should interest rates rise suddenly. Continue reading…
A prominent effect of the global slowdown has been pressure on countries’ tax revenues and difficulty in financing national budgets. The southern European periphery and Ireland have been particularly susceptible to heightened risk premia. While Greece obtained a funding package from the European Union and the International Monetary Fund (IMF) in March, it has been speculated that the likes of Spain and Italy are simply “too big to save” given current central bank and IMF resources in a similar event (1).
The Global Slowdown
As 2012 progresses, the global economy is in a worse state than previously thought, with growth expectations revised lower in many advanced and developing countries. In the United States, gross domestic product (GDP) growth estimates for 2012 have been revised downward from approximately 3 percent at the end of last year to 2 percent at present (1). This has contributed to stubbornly high U.S. unemployment, adding to fears of a “fiscal cliff” with tax increases and spending cuts set to kick in early next year.
Guy Carpenter is pleased to present our mid-year report on the global insurance and reinsurance sector, Overcoming Key Risks on the Road to Profitable Growth. In this report we outline three key risks to the sector: economic uncertainty and emerging interest rate sensitivity, the shifting nature of catastrophe losses and reserving risk. Guy Carpenter has dedicated extensive resources to understanding these risks and it is our objective to assist clients in overcoming the current challenges by deploying best-in-class risk management tools, reinsurance placement and strategic advisory services.