62: Reinsurance Market Provides Critical Global Catastrophe Support

The US based primary and reinsurance markets cede about $60 billion of risk premiums to alien reinsurance carriers each year to help leverage the inherent catastrophe and excess risk accumulations. There has been wide discussion and potential government intervention on this issue particularly of risk placements with affiliated companies that allegedly avoids the payment of US tax. Most often the arguments fail to understand the business purpose, operational benefits and risk management principals behind the strategic usefulness of those facilities. While we have commented on this aspect previously*, the purpose here is to look at the catastrophe risk benefits of global reinsurance to the US private market carriers and their ability to underwrite US risk business.

Click to read more ...

Industry Suffers From Economic and Deflation Threat

The U.S. economy continues to experience slow economic growth with the overhang of a global slowdown from weakness in the European community. While the U.S. Government pushes for greater government stimulus (i.e. spending) among the G20, most European countries are focused on budget restraints. This is in part due to strain on the euro, the market’s common currency as well as budgets that are exceeding current receipts unless governments bring some cost constraints into play. Without such limitations on current account expenditures in a number of countries (k/a the PIIGS) their existing debt burden in relation to GDP will become unsustainable as debt costs rise. Several countries have already seen their credit ratings drop in recent months raising debt service costs. The U.S. faces similar issues on debt carrying costs assuming there is a ready market for our debt securities in foreign countries such as China.

Click to read more ...

Natural Catastrophe News Update on US Hurricane Season

The Colorado State University report on the hurricane forecast for the 2010 season in the Atlantic basin was recently updated.

Click to read more ...

Why PC Casualty Commercial Risk Market Cycles are NOT Dead

A few years ago there was an article in the insurance trade press announcing the demise of the insurance cycle or that period in time when prices and terms move from “readily available” to “restricted” and then back again. Often referred as the soft market to hard market cycle, the author suggested that some fundamental changes in the economic landscape had altered the basis for cyclical behavior of the insurance market, particularly in commercial lines.Read why that may not be true!

Click to read more ...

Expansion of the Risk Retention Act of 1986

Earlier this month bill HR 5792 was introduced that would expand the existing provisions under the Risk Retention Act of 1986 to allow Risk Retention Groups (RRG) and Risk Purchasing Groups (RPG) to include property risks in addition to liability risks already provided under the existing act. This will effectively be the third revision of this legislation that was originally passed in 1981 as the Products Liability Risk Retention Act and subsequently amended in 1986 to apply to all casualty risks except workers compensation. In the case of both the original legislation and its subsequent expansion in 1986, the catalysts for adoption were the lack of coverage availability or excessive cost through the commercial insurance market. It is this same market condition relative to property risks capacity that today gives rise to this new legislation.

Click to read more ...

Underwriting Profits Facing Headwinds

On April 12 the Insurance Services Office released the consolidated US Property Casualty Industry financial results based upon carrier statutory year-end financial filings due by March 1 each year. This financial data reveals the extent of commercial risk competition that has been evidence it price reductions for over a year. While property catastrophe risks both in commercial and personal lines have not seen rate reductions, nearly every other line of business has had at least 2 renewal reductions. This is clearly evident in the reduction of written premium for the year and the 63.6% drop in underwriting profits. Reliance on investment returns to help support the profit outlook is not very encouraging given the current economic environment.

Click to read more ...