Too many catastrophes to mention
The insurance industry has been beset by both man-made and natural disasters in recent months and hardly a day goes by without reports of floods, storms or fires. On the domestic front the industry is processing and settling claims due to severe flooding
Hurricane Sandy (or Super-storm Sandy if you prefer) flooded subway systems, cut power to more than eight million homes, shut down the majority of East Coast oil refineries and inflicted unprecedented damage in the New York metro area. The damages bill is mounting. IHS Global Insight, a forecasting firm, estimates that the storm caused up to $20 billion in property damages with an additional $10 billion to $30 billion in business interruption. They further estimate that the catastrophe will put a 0.6% dent in US GDP Growth in the final quarter of 2012.
Worldwide insurance losses ramp up in the second half...
A recent report issued by reinsurer Munich RE points to a rather indifferent first half of 2012 where catastrophe-related insurance losses were concerned. They said total global insured losses due to natural catastrophe in the half-year to 30 June 2012 came in at $26 billion versus the 10-year average of $75.6 billion. The group says there were 450 natural hazard loss events over the period.
Early indications are that events in the second half could be more than double the recorded losses year-to-date. Global reinsurer Swiss Re is on record its claims burden from Hurricane Sandy will be around $900 million, net of retrocession and before tax. The group estimates total insured losses from the single disaster at between $20 billion and $25 billion.
“The hurricane hit the densely populated North East coast of the US,” says Matthias Weber, Group Chief Underwriting Officer at Swiss Re. “This led to prolonged power outages, disruption to public transport and damage to other infrastructure that have made recovery efforts very difficult. It also complicates the loss assessment process. Our claims estimate therefore is subject to a higher than usual degree of uncertainty and may need to be subsequently adjusted”.
The role of insurers in rebuilding post-catastrophe
The rebuilding of infrastructure post-catastrophe typically offsets the short-term negative economic impact, provided funds are available. Where does this cash come from? There is no doubt that local, provincial and national government structures shoulder much of the burden. But what many commentators overlook is the crucial role that the insurance industry (including brokers, underwriting managers, insurers and reinsurers) plays in returning society to normal. Without insurance it is unlikely that neighbourhoods would recover as quickly from natural or man-made disaster as they do.
It is largely thanks to the huge capital injection via insurance claims pay-outs that Japan (after the 11 March 2011 Tohoku earthquake / tsunami and subsequent Fukushima nuclear disaster) and New Zealand (22 February 2011 Christchurch earthquake) get back on their respective feet. The Tohoku catastrophe is the costliest on record, totalling $210 billion of the $380 billion in catastrophe losses reported last year. Total losses in Christchurch were put at $16 billion. Insured losses came in at $40 billion and $13 billion respectively.
It is a credit to the industry that after numerous multi-billion dollar disasters the major insurers and reinsurers are still capable of meeting their insurance obligations… It could certainly be argued that for the most part catastrophe insurance ‘works’ despite on-going calls by international regulatory bodies for closer financial and operational oversight.
Editor’s thoughts: Website investopedia.com describes reinsurance as “the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim”. A simpler definition is that reinsurance is “insurance for insurers”… Will reinsurance rates come under pressure due to natural disaster experienced through 2012 – or do you believe the real pressure was felt last year? Please add your comment or send it to [email protected]
