Disaster Areas Exposure Reduced
Global reinsurers — including some based in Bermuda — are now reducing exposure to some catastrophe-hit areas of Asia and Australasia after years of pursuing business in those locations for diversification benefits and not properly assessing risks.
According to a report in “The Financial Times” today [Jan. 3] exposures in Australia, Indonesia, Taiwan and Vietnam have all seen big premium rises during the key January 1 policy renewal negotiations on reinsurance contracts that escaped losses from natural catastrophes in 2011.
The business and financial newspaper said premium rate increases have been between 10 per cent and 35 per cent in those countries, but have been much higher for policies that were hit by catastrophe losses -– in Australia by 40 percent to 75 percent and in New Zealand by 80 percent to 150 per cent.
Peter Hearn, chairman of Willis Re, said the more than $100bn of catastrophe claims seen last year, the second worst on record, had arisen on disasters that were either not modelled at all or where the modelling was inadequate.
“The results of 2011 are a sobering reminder for the global insurance industry of the limitations of the current state of our understanding of natural catastrophes,” Mr Hearn said. “This realisation has led some reinsurers to question the benefits of diversification, which is leading to capacity constraints in second and third tier catastrophe exposed territories [ie, those outside the US and Japan].”
He added that a number of reinsurers were exiting entirely from Australasia.
Chris Schaper, president of Bermuda’s Montpelier Re in Bermuda, told “The Financial Times” that uncertainty about the wisdom of diversification into the Australian and Asian markets combined with the introduction of some new loss models in the US had combined to hold up the annual renewal negotiations so much that many contracts had still not been signed, particularly in retrocession -– or reinsurance for reinsurers.
“The market is clogged up,” he said. “With less capital available prices have increased and there have been changes in cover terms. For global deals, prices have gone up substantially or people have been trimming round the edges and dropping some regions if they are less important for the buyer.”
