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Reinsurance Market Outlook


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Thanks for posting this!  I found this interesting:


While there is much greater economic exposure to California earthquake risk, reinsurance aggregate is driven by U.S. hurricane risk. This unusual outcome is driven by the fact that Freddie Mac and Fannie Mae, two giant U.S. government sponsored mortgage financing enterprises, do not require homeowners to insure mortgaged homes for earthquakes but do require homeowners to insure for hurricane. We anticipate that as Freddie Mac and Fannie Mae are greatly reduced in size through the terms of their U.S. government sponsored conservatorships, the successor investor/lender based (rather than governmentbased) mortgage market will require its collateral to be insured for earthquakes.


And on China as a growth market (an opportunity for Falcon??):


Of course for China to surpass other peak regions, property owners in China will need to greatly expand the use of insurance to insure against natural catastrophes. If such an insurance market matures, there is likely to be even greater reinsurance market capacity as reinsurers will have the opportunity to diversify global concentrations by providing capacity to Chinese cedents.






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returnonmoneycapital, I agree that those holding federal government debt are not faring well in this run up. Those who purchased municipal goverment debt and corporates are doing very well as spreads narrow. It looks like FFH has effectively found a way to significantly outperform the 'index' with their timely move. I wonder if US gov't yields continue to rise and muni's continue to fall at some point does FFH make the switch back...???

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You might want to look a little closer at AIG.


We know that AIG has been UW primarily for premium vs profit; meaning they need a 'light/normal' cat year to come out ahead. We also know that counterparties are relying on the US fed - & not AIG, to make good on their claims; therefore as long as AIG bids lower it will always get the business.


Media coverage as to pending divisional sales has suddenly stopped, & after the bonuses fiasco - AIG itself seems to now be do everything it can to stay out of the news. If you were one of those execs would you really want to be there now? & if they had left - would you expect the collective degree of risk control to have improved or worsened? The odds would seem to favour deteriation.


We dont know how much of AIGs capital is backing their UW, but we can reasonably infer that its < the minimum capital requirement - as the fed has not cut them off. The absence of sale discussion also suggests that they value their businesses well > what others are bidding, & that they are relying on the fed to meet any liquidity draws; on any of their business lines - less whatever premium they can pull in.


If 2009 is not a light/normal UW year - this could get very ugly, very quickly.

Perhaps worth more or at least as much as a hedge?







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