Natural catastrophes and other disasters produced $370 billion in economic losses in 2011, the highest figure on record, according to new data released by global reinsurer Swiss Re.
The global insurance industry suffered $116 billion in losses, the second-highest figure on record, including a record $49 billion in insured earthquake losses and $12 billion for the Thailand floods, the largest ever for a single flood event.
At $35 billion in insured losses, the 9.0 Japanese earthquake was the most expensive in the industry’s history, but because earthquake insurance protection is relatively low in Japan, the industry will bear only about 17% of the quake’s total cost. By comparison, the $12 billion in insured losses suffered in the February 2011 New Zealand earthquake covered 80% of the economic loss.
“The earthquakes in Japan, New Zealand, and Turkey, as well as the floods in Australia and Thailand, were unprecedented and brought not only massive destruction but also the loss of thousands of people’s lives,” said Kurt Karl, Swiss Re’s chief economist. “ Yet two-thirds of the staggering USD 370 billion in economic damage will be shouldered by corporations, governments, relief organizations, and ultimately individuals, pointing to the still widespread lack of insurance protection worldwide.”
Despite the big losses, those anticipating a turn in property and casualty underwriting cycle toward a “hard market” of rising premium rates might have to wait a bit longer, according to Insurance Information Institute President Robert Hartwig. In a March 22 address to the Insurance Industry Challenges for 2012 conference, Hartwig noted that, while the industry last year saw its worst underwriting losses since 2002, market turns generally only come after a sustained period of underwriting losses. Prior to the last market turn, the industry had suffered six straight years of losses.
As reported by Business Insurance:
“If you are buying reinsurance coverage in New Zealand, Chile or Japan, you may be paying 50-100% more, but here in the U.S. the increase is much more modest,” he said. “Much of the excess capacity in the global reinsurance market has been expunged, but there’s no dislocation in the market as we saw post-Hurricane Andrew or post-9/11.”
But in analyzing reserve data from commercial P&C insurers SEC and NAIC filings, equity analyst Randy Binner of FBR Capital Markets noted that the industry has been moderating its release of reserves for accident years 2003 through 2007, while making provisions for added reserves for more recent years.
“The 2009 to 2011 [accident years] are setting up to be the inflection point between the soft and hard market for commercial lines P/C,” Binner wrote in a March 28 report. “This is the ‘red zone’ of any P/C market turn, where EPS visibility is reduced, particularly in macro-exposed lines such as workers’ comp. While the market is aware of this dynamic, and a hard market supports higher multiples in the future, we still have to get from here to there, and we believe lower EPS visibility around reserves will matter for P/C stocks.”
