Despite ever more evidence of global warming and an increase in natural disasters over the last 18 months, the global insurance outlook remains unexpectedly soft. This trend is counter-intuitive as, given the recent rash of natural disasters, one would expect the market to be hardening.
Yet when one looks at the scale of loss that the global insurance market has been able to absorb in the past, the last 18 months of catastrophe don’t, for example, match the cost of the 2001 World Trade Centre bombing or Hurricane Katrina in 2005. Certainly, taking a longer term historical view helps explain the markets’ current resilience.
In terms of international insured major loss events, 2008 and 2009 were both considered benign from an insurers’ point of view. As such, global insurers and reinsurers were able to make solid annual underwriting and corporate profits while strengthening the risk reserves in their balance sheets.
2010, however, heralded the start of a sequence of insured major loss events that has continued into 2011.
These events, and their estimated cost to the global insurance industry in US Dollars, include:
February 2010 Earthquake in Chile $8 billion
February 2010 Storm Xynthia in Europe $3 billion
April 2010 Fire Deepwater Horizon Rig $1 billion
May 2010 Storms in Eastern USA $2 billion
September 2010 Earthquake in New Zealand $4 billion (Canterbury Plains)
Dec 2010/January 2011 Floods in Queensland $4 billion
2010 Total $22 billion
January 2011 Fire at CNR Horizon Oil Sands $1 billion
February 2011 Earthquake in New Zealand $12 billion (Christchurch City)
March 2011 Earthquake & Tsunami Japan $39 billion
April/May 2011 Tornadoes across USA $15 billion
June 2011 Earthquake in New Zealand $5 billion (Christchurch Vicinity)
2011 Total to date $72 billion
Yet to put these figures and the catastrophes that drove them into perspective, it must be noted that the 2001 World Trade Centre disaster alone bordered on $23 billion and Hurricane Katrina in 2005 drew $71 billion in overall claims. Both these massive losses were borne by the global insurance and re-insurance markets at the time – even if the market did harden briefly at the time of each incident.
These past experiences and the current level of insurance capacity and competition in the market makes it easier to understand why, despite 18 months of almost non-stop natural disaster drawing $94 billion in claims, the current market has remained stable.
In short, most insurers and reinsurers have been able to absorb recent events within their annual trading results and reserves, without the broader market hardening globally. That said, since payouts for major catastrophes often take many months, if not years, to be calculated, agreed and paid, many top international insurers’ 2011 first quarter results were not significantly impacted by 31 March this year.
As such, despite the resilience that we’re seeing, the progressive softening in the market over the last few years is probably bottoming out. Careful attention should, therefore, be given to the 30 June 2011 half-year insurance and re-insurance results reported internationally from around mid-July onwards as these are likely to more accurately reflect the full impact of recent natural disasters.
Furthermore, the current Caribbean hurricane season from early June to late November will be closely watched. Any more major natural disasters in 2011 will add pressure for a hardening of the insurance cycle.
In summary then, the resilient soft market of the last few years has probably bottomed out, with the prospect of some hardening if there is an escalation in the frequency and/or severity of insured major loss events over the second half of 2011.
That said, the soft market could, of course, also continue into early 2012 if more natural or other disasters do not occur and if abundant capacity remains available.
Editor: The November issue of COVER will carry a full story on the reinsurance outlook for 2012 with comments from all the global reinsurers and a few reinsurance brokers. Be sure not to miss it. For a complimentary copy email your details to Jenna on firstname.lastname@example.org
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