Strikes Right Balance between Indemnity and Transparency For both Reinsurance and Capital Markets*
New York, March 13, 2007 – Guy Carpenter & Company, LLC, the leading global risk and reinsurance specialist and part of the Marsh & McLennan Companies, today announced the launch of SelectCatT, an innovative, index-based product that provides reinsurers with much needed capacity, flexibility and rational pricing for managing their property catastrophe risks. SelectCat’s unique pricing and loss index is developed from a synthetic layer, structured for a basket of programs selected to act as a proxy for the portfolio that a reinsurer wants to protect.
This customized index approach adds value to the reinsurance supply chain by retaining the indemnity feature of insurance protection, engaging buyers in actively managing their portfolios and offering sellers more transparency of data and better control of exposures. With these key features, SelectCat delivers additional capacity and effective hedge to issuers, while giving retrocessional reinsurers and other capital providers a higher degree of comfort in assuming risks from reinsurers.
“After Hurricane Katrina, we recognized the need for a more proactive approach to securing capacity in the property retro market and began to look at new, index-based approaches,” said David Priebe, Head of Guy Carpenter’s Specialty Operations. “Since the completion of our first SelectCat transaction in 2006, the response from the marketplace has been overwhelmingly positive, and it is now being used as a key hedging strategy by some of the world’s leading reinsurers. Though SelectCat was developed in response to hard market conditions, its innovative structure, superior exposure control and greater transparency make it a rational solution in all market cycles.”
SelectCat is useful for capital market providers, as well as the retrocessional specialty and the traditional reinsurer markets. Similar in concept to a Collateralized Debt Obligation (CDO), it allows retrocessional reinsurers and other capital providers to access portfolios of insurance risks that fit their risk appetite. By utilizing a portfolio approach that incorporatesa number of programs, SelectCat greatly reduces the concentration and operational risk associated with writing a single catastrophe program. In addition, SelectCat offers retrocessional reinsurers and other capital markets providers the necessary flexibility to take on insurance risk in the post-Florida legislation era, and enables reinsurers to rebalance their risk profiles rather than offload risks proportionally.
“Conventional wisdom has dictated that retrocession comes with a high degree of uncertainty and that buyers ought to pay much higher – sometimes irrationally higher – prices to compensate for this uncertainty,” added Mr. Priebe. “SelectCat proves that adopting a customized, index approach, if structured and analyzed properly, can produce more predictable results than an individual program. Though many reinsurers will continue to opt for traditional retrocessional insurance, in today’s competitive marketplace where options are limited and the pricing environment is challenging, SelectCat is an exciting new breakthrough that raises the bar for index-based protection.”
Guy Carpenter & Company, LLC is the world’s leading risk and reinsurance specialist and a part of the Marsh & McLennan Companies. Guy Carpenter creates and executes reinsurance and risk management solutions for clients worldwide through 2,600 professionals across the globe. The firm’s full breadth of services includes 16 centers of excellence in Accident & Health, Agriculture, Alternative Risk Transfer, Environmental, General Casualty, Investment Banking*, Life & Annuity, Marine & Energy, Professional Liability, Program Manager Solutions, Property, Retrocessional, Structured Risk, Surety, Terror Risk, and Workers Compensation. In addition, Guy Carpenter’s Instrat® unit utilizes industry-leading quantitative skills and modeling tools that optimize the reinsurance decision-making process and help make the firm’s clients more successful. Guy Carpenter’s website address is www.guycarp.com.Tags: Guy Carpenter