According to Munich Re, one of the largest international reinsurers, natural catastrophe losses for 2011 were more than three times the 10 year average.

The anticipated cost of natural catastrophes (hurricanes, tsunamis, earthquakes, volcanoes, floods) to the global insurance industry is placed at between US $105BN and US $110BN. This approaches the level of losses incurred for the worst year on record, 2005, where insured losses topped $125BN largely due to the losses resulting from Katrina and other Gulf hurricanes , and which resulted in a severe (though short lived) hardening in the property insurance markets in our region, both in respect of rates and available capacity.

The losses in 2011, though, were the cumulative result of many events across the world rather than one regional series of events (Southern Atlantic Storms ). This represents a change in pattern from 2005.

Led by the Japan Earthquake and Tsunami (US $40BN) and the New Zealand Earthquake (US $20BN), the series of events included the Thailand floods (US $10BN) while widespread tornadoes, hail and windstorm events across the USA produced in excess of an estimated US$21BN in insured losses. Tornado damage in Alabama, in particular, added another $2.2BN, more than twice the cost of Katrina damage in 2005.

Arguably, the level of losses could have been much higher, had much of the damage not occurred in areas where either the events were not insured in the worldwide insurance market (e.g. Japan nuclear disaster precipitated by the Tsunami) or where insured values as a proportion of total economic values are relatively low. For instance, had the Japan Tsunami hit further South, near Tokyo and the industrialised areas, rather than in a relatively agrarian region, resulting losses would have been exponentially higher.

In fact the total economic damage for 2011 (total cost to the economies of the regions affected) has been estimated to close to US $350BN.

The year was categorised by extremes in reference to natural catastrophes:

The Japan Earthquake/TsunamiThe costliest natural disaster of all time- The strongest quake ever recorded in Japan (9.0)
The Christchurch NZ EarthquakeThe second deadliest natural disaster (after 1931 Hawkes Bay earthquake) with 181 people killed, and the fourth deadliest incident ever to hit NZ.
The Thailand FloodsThe costliest natural disaster ever for Thailand
The Alabama TornadoesGreatest number of tornadoes in a single event (twice!)- April event was the worst natural disaster in the USA  since Katrina

The one positive aspect in the sad tale of natural disasters in 2011 has been the relatively low number of ‘hits’ by tropical storms in the Southern Atlantic for the season. In fact, only one storm – hurricane Irene – made landfall on the US and Canadian East coast.

The responses from the international reinsurance market are being felt through increases in (property) reinsurance costs with the January 1, 2012 treaty renewals, however, rate increases have been focussed more on those areas where the losses have originated rather than universally, as we have seen in the past. For example, some rates in New Zealand have been increased by over 100%. Japanese catastrophe reinsurance rates and rates in the US ’ tornado belt’ and other weather-prone regions are reported to have also seen significant increases (20-50% or more). however it is considered that with a combination of the almost universal economic uncertainty being experienced as well as the still relatively high level of capitalization in the marketplace, the pace of any generalized rate increases (unlike experienced in 2005) outside the regions directly affected is expected to be gradual.

In the local marketplace there has (fortunately) been little evidence of rate increases thus far, other than a somewhat diminished appetite among insurers to, ‘negotiate’ on their standard property rates.

What with the drastic increases that the average consumer has experienced across the retail sector over the past year including costs of essentials, fuel and utilities, and in the face of shrinking incomes for many, it would be expected that any attempt to significantly increase insurance rates at this time would be met with (predictably) a shrinking market – wherever possible, many clients will opt not to insure, or to reduce their coverage, retaining the additional risk themselves.

This economically necessitated increase in risk appetite on the part of the consumer will, in turn, increase latent risk in the economy which cumulatively could produce dire consequences in the event that the country is affected by a catastrophic event .

While the January 1 insurance treaty renewal deadline, the first point at which we are likely to have seen increases,  seems to have passed in a fairly benign manner, some local insurers still carry a July 1 renewal date. This is the next occasion on which rates and/or capacity in this market could feel the effects of reinsurers fortunes. So, while we appear to have been handed a reprieve for January it could be short-lived. One thing is certain. This is the longest ‘soft’ insurance market that any of us in this region can remember (not counting the short lived glitch in 2006 following the 2005 Hurricane season). The pendulum will swing. It always does.

(Statistical Information – Insurance Information Institute, Swiss RE, Munich Re, A.M. Best)

About the Author

Richard Ince
Richard Ince -

Richard Ince CIP CRM - Account Manager, CGM Gallagher Insurance Brokers (Barbados) Ltd. is a seasoned Barbados insurance manager and consultant with over thirty five years experience, over half of which have been in the international insurance field. In addition to an extensive underwriting and risk management background in Barbados and Canada, he spent several years in local insurance company management as well as a GM/Director of Barbados operations for a leading international Insurance consultancy. Richard has accumulated a wealth of experience in the Barbados International Insurance Sector through his involvement with a number of innovative programmes , including:* Setup of one of the first local insurer-owned Captive Managers in Barbados* Setup and management of major captive operations for US, Canadian, European and Caribbean corporations and Fortune 1000 companies* Setup of some of the earliest Segregated (Protected) cell and Separate Account structures in the domicile* Provision of Barbados domicile representation for US Insurance Intermediaries* Provision of management and captive consulting services in Canada for Barbados-based Insurance Group.A past president of the Insurance Institute of Barbados, Barbados International Insurance Asssociation (BIIA) and Vice-President of the Barbados International Business Association (BIBA), Richard is a regular presenter at conferences and seminars and has published a number of articles on the Barbados International Insurance Sector, including in both the 2008 and 2009 editions of ‘Business Barbados'.Richard holds a Chartered Insurance Professional (CIP) designation from the Insurance Institute of Canada and a Certificate in Risk Management (CRM) - Global Risk Management Institute.