Guy Carpenter Unveils New Model for Studying Insurers’ Quota Share, Surplus/Trust Preferred Note Options

November 20, 2003

Guy Carpenter & Company, Inc. announced the development of a proprietary analytical tool in response to insurance companies’ growing use of quota shares and surplus/trust preferred notes to manage their capital and surplus requirements.

Called Quota Share and Surplus/Trust Preferred Notes Comparison Model (QSTN), the new tool is reportedly being used exclusively by Guy Carpenter (www.guycarp.com) brokers to evaluate and compare their clients’ surplus and leverage relief options, and is believed to be the first model of its kind in the reinsurance industry.

“Many insurers are finding it increasingly difficult to manage their capital and surplus requirements in the face of rising rate and premium levels, adverse loss reserve development, restricted investment returns, poor historical underwriting results and other factors,” said Rob Darby, managing director, Structured Risk Specialty, Guy Carpenter. “While reinsurance strategies involving the use of quota shares and surplus/trust preferred notes can be effective in managing these requirements, each has a different impact on a company’s cost structures, financial statements and financial solvency measures. With the QSTN model, we can make recommendations based on both quantitative and qualitative factors that address each client’s specific circumstances and needs.”

QSTN provides financial statement projections, cost/benefit analyses and comparisons of the subjective issues that help clients develop effective strategies for dealing with surplus and leverage issues. The model reportedly helps clients make informed decisions that take into account regulatory acceptance of the structures, auditor approval of structure quota share (risk transfer), reinsurer counter-party credit issues, and the impact on financial statements as well as BCAR scores and other risk-based capital (RBC).

“Part of our job as advisors is to give clients the tools and information they need to make smart capital and reinsurance decisions,” added Christopher McGhee, managing director, Investment Banking Specialty, Guy Carpenter. “QSTN is an example of how Guy Carpenter draws on its vast knowledge base to develop proprietary solutions that protect our clients’ business interests.”

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