2008 will be remembered as a year of significant natural catastrophe losses. Munich Re and Swiss Re have suggested industry losses of between USD40-50bn for 2008 alone, with PCS (Property Claim Services) reporting US losses of around USD25bn. Much of the focus has been headline losses, including Hurricanes Ike and Gustav, and these events have merited special mention in a number of recent (re)insurance year end financial reporting statements.

But there are two more issues worthy of consideration.

The first is that of large/single risk losses. Guy Carpenter has produced a report entitled Man-Made Cats hit USD7bn in 2008 (18th February, 2009) which highlights just how significant large losses have been in the past 12 months, both in respect of size and frequency.

In summary:

“Man-made and technological catastrophes caused around USD7bn in insured losses last year. This put 2008 losses around 46% higher than the annual average of USD4.8bn, according to data from Swiss Re. Nineteen known events resulted in insured losses of more than USD50m each, according to publicly available information. These events occurred in 11 countries, with losses ranging from USD80m to nearly USD2bn”.

Within these losses are significant contributions from business interruption losses – eg USD1.5bn from BHP Billiton and the Apache Varanus Island explosion (all in a USD1.8bn loss). A stark reminder to the insurance community of the requirement to manage these types of large risks, and to maintain control over large  business interruption loss potential.

The second element relates to balance sheet value erosion/deterioration. Swiss Re pre-announced (9th February, 2009) that they had taken a CHF6bn loss on their balance sheet. Swiss are not alone in this regard and year end statements have been punctuated by declining shareholder equity values. Many publicly listed companies have also suffered the ‘double-whammy’ of declining stock values.

Whilst the insurance industry has fared relatively well in comparison to counterparts in the banking sector, again the requirement to rebuild balance sheets and financial robustness will have a marked impact in determining the rating environment going forward. And it is important to note the different dimensions of potential losses that insurance companies are exposed to.

Tags: Financial, Hurricanes, Ike, Large Loss

This entry was posted by Vinay Mistry on Wednesday, February 25th, 2009 at 11:24 am and is filed under Exposure Management.