What is going on in the The Catastrophe Reinsurance Market?

Posted on Thursday December, 2011
Filed in Uncategorized

The Cat reinsurance market is very tight for 2012 – not just for us or our state and a brief recap shows the some of the issues:
• 2011 was the most expensive and deadliest hurricane season in the U.S. since 2008. Three Atlantic storms caused a combined $8 billion in damage.
• 2011 was the third most active tornado season since 1980. There were 1,559 storms with a death total of 552. The most powerful storms, in Tuscaloosa, Ala. and Joplin, Mo., led to combined losses in excess of at least $5 billion. North Carolina had the three cat events: April 9, April 16, and August 27 plus an unusually large number of wind and hail storms (Climatic changes are occurring).
• There were fewer wildfires in 2011 but acres burned more than doubled and the value of homes and business destroyed was the largest in years.
• 2010 and 2011 both saw more than double the number of earthquakes compared to the previous 14 years! The earthquake in Virginia was a surprise – although our state did not receive much damage, the threat is there for the future.

Then we look at the world where there was nearly five times more cat events than the same period for the past decade!!
The March earthquake in Japan; the worst thunderstorm season in over 50 years; earthquakes, floods and even heat and fire losses (both can become a Catastrophe loss). Climatic variability is the term tbeing used to describe the increasing number and strength of storms. We see storms which are stronger, last longer on the ground and that are moving into areas not normally affected by tornadoes for example.
Since reinsurance is a world-wide industry and capacity/pricing is determined by past losses, future capacity and future loss projections (the companies that do the projections are painting a bleak picture – but their projections are just that, projections but the market has tightgened for 2012 based on 2011 and the projections.
The law of supply and demand does work and the world wide losses took down reinsurers reserves and capacity and now the smae converage is substantially more expensive going forward. Also, do not over-look the world wide financial problems – Greece, Spain, and much of Europe facing serious problems and then our own U S financial and political issues.
This year we are speinding more than $0.20 cents of every premium dollar for Cat reinsurance – the cost for 2012 will be higher. Our Cat program has responded well for 2011 – but we are like some of your insureds who had multiple loss dates and thus mutliple deductibles during the year.
On a positive note: October and November were Very Good months and thus far, December is looking good.