Insurers profits sink as catastrophes rise
By Suzanne Kapner in New York
Published: July 8 2010 05:38 | Last updated: July 8 2010 05:38
Earthquakes in Haiti and Chile contributed to record losses for insurers against natural catastrophes of $22bn in the first half of the year, well above the past decade’s average, Munich Re said on Wednesday.
Insured losses exceeded the amount in 2008, when the last previous record was set. Overall economic losses in the first six months of 2010 from the disasters, which also included an earthquake in China, the volcanic eruption in Iceland and the winter storm Xynthia that swept across western Europe, totalled $70bn, more than the losses for the whole of 2009.
The single most expensive event in the first half was the Chilean earthquake, which cost insurers an estimated $8bn and created an overall economic loss of $30bn, according to Munich Re.
The Haitian earthquake was the deadliest, killing 223,000 people, but because much of the area was not insured, the cost of $150m was modest compared with the destruction.
Analysts said the costly first-half tally was unusual, given that the second half of the year, marked by the hurricane season in the southern US, tends to have the highest losses. They said, however, that the losses were not bad enough to allow insurers to start to increase premiums.
“On a combined basis, including casualty and property insurance, prices will continue to drift down,” said James Shuck, an analyst with Jefferies & Co in London. He said that return on equity for big reinsurers had drifted to the high teens from a peak of 20 per cent last seen in 2008. “The question is, how far do returns have to fall before insurers can start to raise rates?” he said.
The combined effect of higher losses and weak pricing power can already be seen in earnings. In May, Swiss Re said operating income for its property and casualty division had fallen 69 per cent in the first quarter to $259m, compared with $846m the previous year, mainly as a result of a “high level of natural catastrophes”.
Swiss Re estimated its claims from the Chilean earthquake at $500m and said it would have to pay another $100m in relation to Xynthia.
Insurers have largely escaped one of the largest natural catastrophes of the year, the Deepwater Horizon oil rig disaster. Only about $1bn of the rig leased to BP is insured. However, legislation seeking to eliminate liability caps “could significantly increase the cost of reserving against future claims,” Mr Shuck said.
Copyright The Financial Times Limited 2010.
