Reinsurance


As world leaders gather to discuss climate change at the United Nations this week, a new report from the Global Reinsurance Forum (GRF) says risk prevention and mitigation measures as well as risk transfer are the key to managing this threat.

According to the report, up to 65 percent of climate risks can be averted by adaptation measures including infrastructure development, technology advancements, shifts in systems and behaviors such as improved building codes and land use management, and financial measures.

The global re/insurance industry plays a vital role in planning and implementation of such measures. As the GRF says:

Future insurability will depend on well-planned adaptation: without it, property insurance will become less affordable and less accessible.

The world cannot simply insure its way out of the effects of climate change, but adaptation allows the global burden of potential loss to be reduced and shared, helping to keep the most vulnerable from being overwhelmed.”

The report points out that the reinsurance industry is particularly exposed to the impact of climate change given its role as an ultimate destination of risk:

The industry identified climate change as an emerging risk more than twenty years ago; it has since become a key component of every company’s long-term risk management strategy.”

Citing a 2012 IPCC report, the GRF notes that extreme weather events, such as storms, floods, droughts, heat waves as well as rising sea levels, crop failures and water shortages have become more numerous and severe.

Reinsurers can make an important contribution by developing protection and mitigation-finance solutions to address the specific challenges that climate change presents.

At the same time, the GRF says reinsurers are advancing understanding of climate change-related risk through the development of natural catastrophe models and via collaboration with universities and scientific institutions. They are also monitoring relevant phenomena such as urbanization, population concentration, property and commercial activity in high-risk areas along the coasts and flood plains.

Check out a great I.I.I. backgrounder on climate change and insurance issues here.

Reinsurance executives will be gathering in Monte Carlo this weekend for the sector’s 2013 Reinsurance Rendezvous.

Already, #MCRe13 is seeing a lot of activity on Twitter ahead of this year’s conference.

A just-published report from Aon Benfield found that global reinsurer capital reached a record level of $510 billion at June 30, 2013. This was an increase of 1 percent ($5 billion) from December 31, 2012, Aon Benfield said.

Business Insurance has more on this story.

Meanwhile, a newly-issued report from ratings agency A.M. Best finds that despite a subpar operating climate, global reinsurers have managed to squeeze out relatively reasonable returns on capital and compensate investors while sustaining organic growth in capacity.

Quite an accomplishment, considering all the obstacles reinsurers continue to navigate. According to A.M. Best:

Over the past two-and-a-half years, catastrophes worldwide have inflicted approximately USD 190 billion in insured losses. For global reinsurers, these events were primarily a drag on earnings, as balance sheets remained robust. The challenge of managing loss accumulation from global catastrophes was evident in 2011, and since 2008 reinsurers have faced numerous hurdles due to a weakened global economy: deteriorating investment returns; more volatile investments; suppressed growth opportunities; increased client retentions and competitive pricing.”

Guy Carpenter recently reported that July 1 reinsurance renewals indicate that downward pressure on reinsurance rates is likely to continue through 2013, despite catastrophe losses reaching $20 billion in the first half of the year.

Guy Carpenter noted the increasing influence of alternative capacity, estimating that some $45 billion in additional capital from third-party investors had entered the market. This represents around 14 percent of the current global property catastrophe reinsurance limit.

Check out I.I.I. information on reinsurance.

Reinsurance executives have been gathering in Monte Carlo this past weekend for the sector’s 2012 Reinsurance Rendezvous.

If you can’t be there in person, check out #MCRe2012 on Twitter for the latest conference happenings.

Insurance Journal writes that the reinsurance industry’s key concerns are the ongoing financial crisis in the euro zone, interest rates and capital.

Meanwhile, Artemis blog tells us that one of the hot topics of conversation at Monte Carlo this year is the convergence of the reinsurance and capital markets.

Industry appetite for mergers and acquisitions is the subject of a Bloomberg BusinessWeek report.

The improving capital position of the reinsurance sector has been the dominant theme of recent industry briefings.

A new study from Aon Benfield found that global reinsurer capital reached a record level of $480 billion at June 30, 2012, up 5 percent from December 31, 2011, amid lower catastrophe activity.

Similarly, Guy Carpenter recently reported that reinsurance renewals took place against a backdrop of plentiful capacity at July 1, 2012.

Check out I.I.I. information on reinsurance.

Reinsurance executives have been gathered in Monte Carlo this past weekend for the sector’s 2010 September Rendezvous.

If you weren’t able to make the trip this year, not to worry, reinsurance girl’s blog will transport you to the gilded ballrooms with its virtual Monte Carlo reports. Also, check out Twitter #rvmc2010 for the conference gossip.

Several newly-published studies on the state of the reinsurance market are also worth reading. Here are a few selections.

Guy Carpenter’s World Catastrophe Reinsurance Market 2010 report finds that reinsurance rates continue to decline, despite costly disaster losses in the first half of the year.

Global catastrophe reinsurance rates fell by 6 percent on average throughout the 2010 renewal season, according to the Guy Carpenter World Rate on Line (ROL) Index.

Guy Carpenter estimates that the reinsurance market was overcapitalized by as much as $20 billion, or 12 percent, at the beginning of 2010. While this amount came down to approximately 8 percent by the end of June, reinsurers’ excess capital continued to be the main driver of rate reductions at the 2010 renewals.

If no market-changing event were to occur in the second half of the year, surplus capital is likely to remain the driving force behind continued rate softening at next year’s January 1 renewal, according to the study.

Meanwhile, ratings agency A.M. Best says robust earnings reports mask challenges ahead for the global reinsurance industry: a convergence of market pressures, low interest rates and tightening financial and market regulations that could impact the industry’s capital.

Despite seemingly ripe conditions for consolidation – excess capital and a soft market – the bleak outlook for profitability has reinsurers across the board trading near or below book value, which constrains the market for mergers and acquisitions.”

A.M. Best says that prudent reinsurers are looking at every aspect of their operations – capital management, underwriting discipline, the size of their balance sheets and even their countries of domicile.

It notes that insurers and reinsurers continue to prepare for Solvency II, the European Union’s new solvency directive, which A.M. Best believes will drive business to highly rated reinsurers.

Check out I.I.I. information on reinsurance.

While we were out on vacation, online insurance exchange MarketScout published its latest market barometer.

For those of you that missed it, MarketScout’s analysis reveals the composite rate for property and casualty placements in the U.S. measured down three percent for July 2010, compared to minus six percent a year ago.

MarketScout founder and CEO Richard Kerr, observed that insurers got just what they needed to continue aggressive pricing for the balance of the year: favorable midyear reinsurance terms.

Barring a major catastrophic event, we predict an overall soft market for the balance of 2010. Rates will continue to moderate in select coverages or industries but the composite rate will probably continue to show a small reduction from the immediately preceding year.”

General liability was the most aggressively priced product line (down 5 percent) in July, followed by BOP and commercial property at minus four percent.

Crime (flat), D&O liability, EPLI, professional liability and surety (down 1 percent) were the coverage classes experiencing the smallest decreases.

Check out I.I.I. information on reinsurance, and I.I.I. information on the industry’s financial results and market conditions.

The very word tax usually sends shivers up one’s spine. But tax is an unavoidable part of our industry and the broader business community, so here goes.

A hearing on Capitol Hill today will address a long-running industry debate over whether reinsurance (insurance for insurers) is being used to shift profits from the United States to low-tax or no-tax jurisdictions, creating a competitive advantage for U.S. subsidiaries of foreign corporations.

Today’s hearing before the Select Revenue Measures Subcommittee of the House Ways and Means Committee concerns HR 3424, a bill sponsored by Rep. Richard E. Neal (D-MA).

Essentially the bill would limit the deduction taken by a U.S. property/casualty insurer for non-taxed reinsurance premiums paid to related foreign parties.

As with many issues in our industry this is one that elicits differing viewpoints among the industry’s many and diverse participants.

Insurance Journal reports that the Neal bill is backed by the Coalition for a Domestic Insurance Industry, headed by William Berkley, chairman of W.R. Berkley Corp. The coalition represents 13 major U.S.-based groups.

On the other side, the Coalition for Competitive Insurance Rates (CCIR) opposes the bill. The Coalition notes that nearly 40 independent experts, state government officials, business owners, and associations have publicly filed opposition letters to the proposed legislation.

An updated study commissioned by the CCIR and prepared by the Brattle Group suggested that the enactment of HR 3424 would: cost consumers an additional $11 billion to $13 billion per year to maintain their current insurance coverage; significantly weaken competition; and reduce reinsurance capacity in the U.S. by 20 percent.

However, in an interview with National Underwriter online, Mr. Berkley disputed the study’s findings and noted that the Neal bill has a “very narrow focus” that would create a level playing field for both domestic and offshore insurers and reinsurers.

A recent post on reinsurance girl’s blog is worth checking out for more on this story, as is GC Capital Ideas blog for background info on the Neal bill here. Also check out I.I.I. information on reinsurance.

Despite significant catastrophe losses during the first half of 2010, including the Chilean earthquake, reinsurance rates continued to decline at the July 1, 2010 reinsurance renewal, according to a newly released report from Guy Carpenter.

The report found that U.S. property rates decreased by as much as 15 percent, with pricing for the year down 12 percent. Meanwhile, across the energy and casualty sectors, conditions were flat or down, though the Deepwater Horizon rig disaster has the potential to put upward pressure on rates.

Predictions of an active hurricane season have had only a slight impact on June and July renewals, with quoting behavior firmer than expected, but if the forecasts are right, there is a greater chance the marketplace will look very different at the January 1, 2011 renewal, Guy Carpenter said.

It went on to explain that while the Deepwater Horizon loss is potentially a market-changing event, it is geared principally towards energy and liability exposures. Reinsurers will be hard-pressed to justify rate increases for clients writing traditional marine cargo/hull accounts, it suggested.

Reinsurers’ quotes on international placements were unaffected by the Deepwater Horizon loss, as accounts were underwritten separately based on specific account losses and exposures.

However, marine excess of loss pricing is expected to increase substantially for reinsurance buyers with energy exposures. Increases of greater than 10 percent were seen for deepwater drilling risks similar to those of the Deepwater Horizon, Guy Carpenter said.

Check out I.I.I. background information on reinsurance.

The Chile earthquake could outpace Hurricane Wilma as the most costly insured event in Latin America’s history, according to a recent posting at insurereinsure.com (the insurance and reinsurance blog of Edwards Angell Palmer & Dodge). Quoting commentary from reinsurance broker Cooper Gay it notes that even if insured losses fall in the mid-range of current estimates of between $2 billion and $8 billion, the earthquake likely will overtake Hurricane Wilma in 2005 as the most expensive insured event ever to hit Latin America. Insurereinsure.com goes on to note that some compliance and coverage issues have also begun to emerge from Chile as the investigation of losses progresses. International insurers and reinsurers continue to announce preliminary loss estimates following the quake. Global Reinsurance also quotes Cooper Gay analysis comparing the Chile quake to Hurricane Wilma. While Wilma was very specific to the Cancun region in Mexico, largely affecting coastal, hospitality-related properties, the Chile earthquake covers a much wider area (900 sq miles) and has destroyed a much broader spectrum of property. Cooper Gay also notes that up to 75 percent of the Chile quake was reinsured, but whether it’s a market-changing event will depend on whether losses creep up toward the top end of the insured loss estimates. The comments underscore the point that insurance dollars will go a long way to help rebuild and defray the economic cost of the quake. Check out the I.I.I. International Fact Book for information on the Chile insurance market.