Posts Tagged ‘Regulatory’
Guy Carpenter hosted “Transferring Risk - Is the Insurance and Reinsurance Industry Adequately Servings its Clients?” the Reinsurance Symposium held in Baden-Baden on October 20, 2013. The event explored a range of topics including: the gap between economic and insured losses; how new capital entering the market can move beyond property catastrophe; and measures to provide coverage for new and emerging risks.
For bodily injury claim settlements in Europe, the trend is shifting away from lump sums and towards annuity-type settlements, which come with risks related to longevity, inflation and hedging. Insurance companies with significant casualty business may see their risk profiles transform over time to be more like pensions funds - but without working members and with even longer lasting liabilities. While the insurance industry is beginning to understand the implications of this move to annuity settlements, it does not have a clear understanding of the implications for an increasingly important regulatory balance sheet metric: Risk Margin.
The macroeconomic environment continues to be top-of-mind among insurance leaders. With growth in global real gross domestic product (GDP) slowing from 4.1 percent in 2010 to 3 percent in 2011, insurance leaders continue to experience significant headwinds challenging profitable growth. As reported by Swiss Re, insurance overall direct premiums declined 0.8 percent in real terms in 2011. Nevertheless, pockets of opportunities do exist and will continue in the near term. Stabilizing social/political conditions, investments in infrastructure and demographic progression continue to fuel strong positive GDP growth and increasing insurance penetration in emerging economies. In these economies, overall direct premiums increased 1.3 percent in real terms in 2011, with non-life premiums increasing 9.1 percent.
Paul Silberbush, Managing Director
Capital models are becoming more and more “embedded” into property and casualty (re)insurers’ business processes. These models are typically constructed with two distinct and often contrasting purposes: 1) measuring capital for rating agency and/or regulatory requirements and 2) risk management and strategic business planning.
Here we review recent GC Capital Ideas stories that have referenced (re)insurers doing business in emerging markets.
Recent Legislative and Judicial Developments in Continental Europe Affecting the Casualty Insurance Industry is the latest installment in Guy Carpenter & Company Ltd.’s (”Guy Carpenter’s”) legislative update series, designed to provide our international clients and markets with a concise overview of key trends in the Continental European legal environment. These issues have had an impact on insurers and reinsurers or are expected to have an effect in the near future.
A great deal of attention this year has been focused on determining the practical effects of Solvency II once it is put into effect. In March 2011 the results of QIS 5 were released. EIOPA launched a three-month Solvency II stress test shortly thereafter. Both events shed light on the real-world implications of the new regime, raised issues that should be addressed before it goes into effect and, in large part, sparked the debate that is likely to lead to a delay in its implementation.
Whatever the final method for assessing counterparty default risk under Solvency II, this is an opportune time for companies to revisit credit risk management to ensure not only compliance with regulations, but also to limit this non-core risk. Insurers transact with numerous counterparties, including policyholders and agents, corporate bond issuers and asset managers, reinsurers and, of course, reinsurance intermediaries.
Counterparty default risk is one of the core components of the SCR. This module has undergone substantial change over the several quantitative impact studies, as the supervisors attempted to find an appropriate measure of the risk. In the QIS 5 final report, EIOPA noted that this module received the most criticism for the “overly complex approach” relative to the materiality of counterparty default risk within the overall risk-based capital requirement (1). We expect to see additional changes that will simplify the calculation of risk.