March 2008 23www.the-actuary.org.ukUS sub-prime mortgage crisisSeveral US and Bermudian financial guarantee insurers are understood to have taken action to increase their capital before the end of 2007, in view of their sub-prime mortgage exposures. This follows a review of their position by the credit rating agencies. The actions taken by these companies included raising new capital through the equity or debt markets and extending reinsurance arrangements. Some of the amounts, such as that at MBIA, ran into billions of dollars.It has been disclosed that the sub-prime mortgage crisis has completely wiped out the combined $200m investment in ChannelRe by RenaissanceRe (RenRe) and PartnerRe. ChannelRe was formed to reinsure the exposure of MBIA, one of the worst-hit victims of the crisis. In addition, RenRe announced a further $55m charge arising from estimated losses from coverage they wrote to protect insurers against an aggregation of losses from a single event 8212 in this case the event was the sub-prime crisis. Lloyd8217sThe market8217s overall capacity for 2008 has reduced from 16316.1bn to 16315.95bn, with a significant change in the balance between limited liability and unlimited liability capital providers. The amount provided by names with unlimited liability has fallen by 24% to 1631.09bn but capital providers with limited liability had shown a small increase.Catlin, the major Lloyd8217s underwriting agency, has completed a transaction to give it protection of $225m for three years, using a catastrophe bond. The coverage is through Newton Re, a Cayman Islands special purpose vehicle, and has limits of $87.5m for US earthquake losses and $137.5m for US hurricane losses. Payment will be dependent on the market losses reported by the Property Claims Service division of the Insurance Services Office in New York.It is understood that Alea Group is in the process of establishing a new Lloyd8217s agency and syndicate to write run-off business. The intention appears to be that the new syndicate would provide reinsurance to close for Lloyd8217s names who wished to wind up their underwriting activities and leave the market. If approved, this would be the first syndicate to have the sole purpose of writing run-off business. UIC Insurance Company (UIC)Ipe Jacob of Grant Thornton, who is one of the officers of the scheme of arrangement for UIC, has announced that a second dividend will be paid to the company8217s creditors very soon. This is in addition to the 100% dividend paid last year, and will bring the total declared dividend to 123%. This unusual situation is likely to be further compounded by a third dividend before the end of 2008. The ultimate dividend will be many times more than the worst scenario at the time when the company became insolvent in 1996.Large losses:Crash landing of British Airways plane at Heathrow, London 8212 17 January. This occurred when a Boeing 777 arriving from Beijing just failed to reach the runway after its Rolls-Royce engines did not respond to the demand for additional thrust as it neared landing. The plane sustained major damage to its undercarriage and wings and may be a total loss 8212 it is valued at $120m. Amazingly, all 152 passengers and crew were safely evacuated from the plane, with only 16 having minor injuries, so liability losses are unlikely to prove material. The British Airways insurance is placed in the London market, led by American International Group. The policies for Boeing and Rolls-Royce are also placed in London and led by Global Aerospace Underwriting Managers 8212 which policy is liable will depend on ongoing investigations into the precise cause of the crash.Floods in UK 8212 mid-January. These initially hit south-west England and south Wales after persistent heavy rain in the areas caused river levels to rise. The impact later spread to the counties of Shropshire, Lincolnshire and Yorkshire, and included some localities which were also severely affected by the floods last summer. No insured loss estimates are currently to hand, but the losses are not on remotely the same scale as the earlier ones.NewsIndustryMore news on the following items can be found on the website: n
Asbestos and pollution developmentsn Solvency IIn
Other regulatory developmentsn
Other large losses. Visit www.the-actuary.org.uk/newsFor more newsFrom the world of general insuranceSwiss ReTowards the end of January, it was announced that Berkshire Hathaway had acquired a 3% stake in Swiss Re, and agreed a five-year 20% quota share reinsurance on the latter8217s non-life insurance and reinsurance business. Swiss Re intends to use the capital freed up by these transactions to buy back a further SFr1.75bn worth of its shares. This is in addition to the SFr6bn already repurchased over the last two years.Swiss Re has also announced that the company has placed a E200m catastrophe bond to protect it against French windstorm claims. Groupama SA is the counterparty to the transaction.The annual Swiss Re Sigma report on natural catastrophes has estimated that more than 20 000 lives were lost from such events in 2007, and the financial cost was $61bn, of which only $25bn was borne by property insurers. In addition, the report estimates insured losses due to man-made catastrophes (such as fires, explosions and aviation crashes) at $2bn. The insured losses for natural catastrophes were below the long-term trend, and those for man-made disasters pretty much in line with the norm.Allstate problems in FloridaFlorida8217s regulator has suspended Allstate, the largest publicly held personal lines insurer in the US, from transacting business in the state for failure to comply with subpoenas issued by the Office of Insurance Regulation (OIR) in October 2007. OIR claims that Allstate did not provide all the documents required by the subpoenas in relation to its reinsurance programme and its relationships with risk-modelling companies, ratings organisations and trade associations. Allstate claims to have provided 40 000 pages of information.David LatJerry PankInsured losses for man-made catastrophes in 2007 total 1632bn.State of Florida suspends Allstate.023_Actuary_GenIns_0308.indd 2319/2/08 14:12:36
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