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Capital Markets and Reinsurance: When Worlds Collide

Capital Markets and Reinsurance: When Worlds Collide. Tom Toce FMR Seminar April 13, 1999. Agenda. Introduction Enterprise Re When Worlds Collide Redefining the Actuary EPS Protection Debate Wrap Up. Introduction. Convergence Consolidation Confusion Controversy Competition.

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Capital Markets and Reinsurance: When Worlds Collide

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  1. Capital Markets and Reinsurance:When Worlds Collide Tom Toce FMR Seminar April 13, 1999

  2. Agenda • Introduction • Enterprise Re • When Worlds Collide • Redefining the Actuary • EPS Protection Debate • Wrap Up

  3. Introduction • Convergence • Consolidation • Confusion • Controversy • Competition

  4. Enterprise Re New kind of company • Joint venture • Morgan Stanley • Employers Reinsurance Corporation (a GE Capital company) • The Chubb Corporation • 6 actuaries, 2 CPAs, 2 financial analysts, 1 underwriter • Includes financial products company

  5. When Worlds Collide • CAT bonds • Weather derivatives • Earnings protection cover • Coordination/correlation of risk • Dual trigger covers • Credit default swaps

  6. The Personals • Offshore mutual heavily invested in stocks with a low P/S ratio, seeks surplus protection • Large corporation adequately protected against catastrophe losses or stock market crash, seeks protection in event of double whammy • Successful company under pressure to meet quarterly estimates, seeks earnings smoothing

  7. Whither the Actuary Current Focus Future Focus Liabilities Optimal Return Pricing

  8. Pro Earnings protection is ultimate risk coordination Right kind and amount of insurance could be only cover needed Con Investors already diversify; they“don’t care if earnings are hurt by uncontrollable events” Volatility not an issue to stockholder; “only the average matters” Earnings Protection Debate

  9. Wrap Up • Embrace change • Develop new skills • Apply actuarial skills in new areas

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