Reinsurance warning after series of disasters
INCREASINGLY FREQUENT and severe natural disasters around the globe will raise the price and affect the availability of reinsurance cover over the coming years, Swiss Re Asia chief economist Clarence Wong warns.
The cost of reinsurance spiked following a horrendous run of natural catastrophes during 2011. Capacity for reinsurance protection remained ‘‘relatively tight’’ despite benign weather patterns last year, Wong argued.
‘‘The capital level of the reinsurance industry was not as high as many people believe – I think it’s important to put that into context on where we see [reinsurance] rates going forward,’’ Wong said.
‘‘The frequency, severity [of catastrophes] is still at an increasing rate. Reinsurers are reviewing their risk models.’’
Insurers who plug into global reinsurance companies for protection will not be immune to higher reinsurance costs, he said.
Insured losses from catastrophes hit US$65 billion ($77b) during 2012, much lower than the US$120b from 2011, according to Swiss Re, one of the world’s largest reinsurers.
Despite the improvement, Wong argues that last year’s US$65b was still higher than the average over the past 10 years.
‘‘We’ve been seeing prices in the reinsurance sector, particularly in natural catastrophe, increase,’’ he said. ‘‘Some of the increases are ASX-listed Insurance Australia Group announced this month that it had lifted the group’s catastrophe reinsurance cover from A$4.7b ($5.9b) in 2011 to A$5b this year.
The cost of the protection was in line with the group’s expectations, which were incorporated into its 2012-13 financial year insurance margin guidance of 11-13 per cent, IAG said.
IAG chief executive Mike Wilkins said last year that the company’s reinsurance costs had stabilised, and will cost around A8c in a premium dollar.
Meanwhile, QBE Insurance Group has reportedly struck a deal with Warren Buffett’s Berkshire Hathaway to write 15 per cent of the company’s reinsurance programme, according to overseas publication The Insurance Insider.
Berkshire Hathaway is also linked with Brisbane-based Suncorp Group and its reinsurance renewal last July.
It is understood that Berkshire provided some of Suncorp’s New Zealand and Queensland catastrophe exposure.
There is also market speculation that Berkshire had been involved in Insurance Australia Group’s 2013 reinsurance programme.
Some industry observers suggest Berkshire is increasing its exposure to the Asian and Australian markets, which could inject competition into the sector and boost the availability of protection to local players.