Stirred but not shaken? The true cost of the Japan disaster on reinsurance and insurance

Posted on March 25, 2011 by Mairi

In the past week, the speculation about the terrible events in Japan – and what they will mean for the reinsurance and insurance market – have begun to calm down. Already badly hit by the New Zealand earthquakes and Australian floods, the first quarter of 2011 has already proved costly – and we have yet to see how the wind blows in the Atlantic this hurricane season.

Opinion on the insured cost of the earthquake and tsunami vary from $10 billion to $35 billion. But with each estimate looking at different perameters, it is difficult to compare like with like. Some say the cost will be much higher once international business interruption (BI) cover is taken into account, while others believe that the way the Japanese market works, the cost will, in fact, be surprisingly low. Some in the know say that total cost of reinsured losses will be as little as $6 billion ($2.5 billion Zenkyoren, $1 billion unknown and $2.5 billion non-life). Others say it has been grossly underestimated with losses from international BI to roll in for years and years to come. Continue reading →

Monte Carlo here we come

Posted on September 10, 2010 by Mairi

It is that time of year again, when the good and the great of the reinsurance world head to Monte Carlo for the annual Rendez-Vous. Bermudians and Americans will already be winging their way across the Atlantic, while most BA flights from London and Zurich on Sunday contain most of the worlds’ reinsurance brains in one metal vessel – wonder what the risk assessment for that would be… Continue reading →

If the Berlin Wall had not come down, what would Munich Re have done?

Posted on November 12, 2009 by Mairi

This week it was 20 years since the Berlin Wall came down. I remember it well, as I was living in Madrid as a student at the time and wish I had hopped on a train to see it happen. Friends returned with small lumps of graffitied concrete they still treasure today. Continue reading →

What worries reinsurers – the price of insurance

Posted on October 21, 2009 by Mairi

You can never be quite sure what the hot topic will be in the run up to renewals on January 1 in the world of reinsurance.

This year, I suspect it will be the lack of discipline and overall falling rates seen in the realm of primary insurance – particularly in the casualty market. A mixture of grabbing for market share following the troubles at AIG combined with clients being more sensitive to pricing means that business is currently being placed at below technical pricing.

Also, after getting a fright with AIG, cedents wanted to take their eggs out of the single AIG basket, and spread the risk. From the moment AIG got into trouble there has not been one competitor offering expiring prices, let alone factoring in an increase.

This month, October, it will be one full renewal cycle of insurance. Business has been redistributed and now customers feel more comfortable that the brokers have done their job, the players who came in will have a piece of that business, and the merry-go-round is likely to stop.

What I’d like to know is are the 30 to 40% reductions in pricing all being taken as part of a measured risk to expand market share or whether it will have repercussions in the years to come?

No one knows where inflation will go from here – and what the real price is for insurance. If you would let underwriters write, on their own, without competition, they certainly price insurance higher given the low interest rate environment – but everyone is anxious about losing business.

Under Hank Greenberg, AIG was known for putting discipline in the market – but not AIG nor anyone else currently plays this role. Reinsurers are trying to put discipline into the market – but they do not seem to be able, in the current market, exert much influence.

But reinsurers, while they claim discipline, are not withdrawing en-masse from the US casualty market – one which is seen as the most under-priced. We are in a deep recession, the worst we have seen for 70 years. Inflation will most likely come in 2011 or 2012, and the underwriting that has been done at below technical pricing will dig companies into an even bigger hole.

What will turn the market? It will have to be a large catastrophe, some huge adverse development. And come it will – they always do.