Category Archives: Property/Casualty

Initial Estimates of Claims from Japan Quake

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Though it is far too early to pin down an exact number for the amount of money the Japan quake will cost insurers, initial estimates have started to surface for some of the hardest hit insurers and reinsurers.

Swiss Re, the world’s second-biggest reinsurer, has estimated it will face claims of about $1.2 billion from the earthquake and tsunami in Japan.

The figure is low because Japan’s government insures residential properties covered by non-life companies against earthquake and tsunami damage and this protection is not reinsured internationally, the Zurich-based company said in an e-mailed statement today. The preliminary claims figure is net of retrocession and before tax, Swiss Re said.

Eqecat, a catastrophe modeling firm, has stated that insurers and reinsurers will likely have losses of $12 billion to $25 billion. However, AIR Wolrdwide has estimated losses of up to $35 billion from the quake alone.

AIG has recently reported that it will record $1 billion in claims for the first quarter, most of which can be attributed to the Japan earthquake and tsunami.

Zurich-based ACE Ltd., a major player in the insurance and reinsurance market, said its initial loss estimates are $200 million to $250 million.

Though Lloyd’s of London has not officially released an estimate, an anonymous market source has said “$3 billion in losses for the Lloyd’s market as a whole sounds plausible.”

QBE Insurance Group Ltd. of Australia has said it estimates $125 million in claims from the quake and tsunami.

Below is a video of the always-entertaining Joe Plumeri speaking on the topic of Japan’s insured losses.

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Warren Buffett Urges More Insurance Underwriting Discipline, Fewer “Testosterone-Driven” Decisions

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When it comes to making good financial decisions, few people are more respected than Warren Buffett. So when the chairman of Berkshire Hathaway, a holding company that counts GEICO, General Re and BH Reinsurance among its revenue generators, gives the insurance industry some advice, many will take note.

Buffett made the following pointed statements in a shareholder letter, warning the industry against “testosterone-driven CEO[s]” that chase policy volume even if it means writing business at  “inadequate prices.”

“At bottom, a sound insurance operation requires four disciplines: (1) An understanding of all exposures that might cause a policy to incur losses; (2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and (4) The willingness to walk away if the appropriate premium can’t be obtained,” the letter states.  “Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has led too many insurers to write business at inadequate prices. ‘The other guy is doing it so we must as well’ spells trouble in any business, but none more so than insurance.”

Such comments are not surprising from someone with a conservative risk appetite like the one that has famously made billions of dollars for the Omaha Oracle. The only question, then, is whether the industry will follow his advice and re-prioritize underwriting discipline.

The history of the insurance market cycle tells us that this will occur.

We just don’t know when.

Australian Disasters: The Reinsurers Hit Hardest

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Beginning December 2010, a series of floods devastated the Australian state of Queensland, three-quarters of which was declared a disaster zone. The latest reports claim the floods killed 35, affected at least 70 towns and cost insurers more than $2 billion, with Cyclone Yasi possibly costing another $500 to $800 million, according to the Insurance Council of Australia.

Karl Sullivan, the council’s general manager of risk and disaster has said insurance companies have received 73,000 claims for the Queensland floods and Cyclone Yasi combined. The following is a list of the insurers most affected by Australian catastrophes (estimates):

Munich Re: The reinsurer was hit hardest with claims totaling $365 million. The company’s fourth quarter profit declined 38% due to the Australian floods plus other costly losses. Munich Re was hit in 2010 by the Chile earthquake (claims of $1 billion) and also affected by September’s earthquake in New Zealand (claims of $460 million).

Chief Financial Officer Joerg Schneider said that “despite weighty major losses, which also affected us at the end of the year, we are presenting a good result.”

Partner Re: The Pembroke, Bermuda-based company announced yesterday that they expect losses of between $80 and $100 million due to the floods and storms that hit Australia. Furthermore, it has stated that its 2010 profits have been dented due to the back-to-back natural disasters.

XL Group: The company has seen first quarter losses of $75 to $95 million related to Australian floods. The company, however, beat Wall Street expectations for quarterly operating profit, due mostly to higher premiums from its property/casualty segment.

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Hanover Re: The reinsurer, the world’s third largest, is expecting losses of $56 to $100 million from Australia’s natural disasters. The company is optimistic after negotiating better-than-expected renewal rates, however.

“For 2011 we see sufficient opportunities for selective profitable growth,” Ulrich Wallin, chief executive officer of the Hanover, Germany-based reinsurer, told reporters during a briefing at the company’s headquarters. “We shall concentrate on segments where prices are rising or where they adequately reflect the risks.”

Transatlantic Holdings: The company expects catastrophe losses to come in between $50 million and $100 million due to the Australian weather events. Like others, the company remains optimistic about future earnings growth.

“We achieved strong earnings for the quarter and year despite an elevated level of industry catastrophe loss activity. Book value per share increased 13% in the last twelve months and 43% since the end of 2008.

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Net operating cash inflows totaled .

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1 billion in 2010,” said Robert F. Orlich, President and Chief Executive Officer.

Jan/Feb Issue of Risk Management Now Online

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Faithful readers: the January/February issue of Risk Management magazine is now online. The cover story focuses on women’s struggles and successes within the risk management and insurance industry. Other features explore the rising risk of pirate threats on the high seas, the 3 worst assumptions risk managers make and how a new SEC rule changed the way companies look at risk management.

Our columns explore topics such as insurers reaction to the Fed’s spending, the biggest risks of 2011, the property/casualty market in 2011 and an engaging Q&A with Eurasia Group President Ian Bremmer.

If you enjoy what you seen online, you can subscribe to the print edition to enjoy even more content.

Please let us know what you think in the comments below. And stay tuned to the blog for even more coverage in the future. Lastly, you can follow the magazine on Twitter, “like” us on Facebook and join our LinkedIn group.