With yesterday’s catastrophic tornadoes in Joplin, Missouri, the most recent in a long line of 2011 disasters, the cost of re-insurance is going up. Prior to yesterday, the reinsurance bill for 2011 stood in the vicinity of $50 billion, leaving virtually no room for additional losses through the end of the year. Alas, we now have Missouri, and the year is not even half over, with hurricane season yet to begin.
Risk & Insurance magazine highlights the problems facing reinsurers:
Yvette Essen, an analyst for A.M. Best, said that the catastrophic first quarter means that many reinsurers will struggle to record any full-year underwriting profit for 2011.
“The industry faces further challenges in achieving profitability as the hurricane season approaches and investment yields remain low,” she commented.
“While reinsurers continue to maintain sound capital positions, the excess capacity that existed at the prior year-end has clearly been diminished,” he said.
Richard Ward, CEO Of Lloyd’s of London, warns that the relatively inexpensive cost of insurance is really an illusion: “Prices are dangerously low at present,” he told an industry conference. “Clients may think they are getting a bargain. But the fact is that they are buying security. The insurers who write unprofitable business are inevitably the first to collapse when disaster strikes.”
Beyond Risk Transfer
It appears we are entering a period of steadily increasing instability in nature. Ferocious storms and floods in the US, the Japan earthquake and tsunami, the volcano in Iceland, the fires in Australia – all flitter across our computer screens and raise the specter of inconceivable loss. Insurance – where it’s available – merely provides capital for rebuilding. Much of what is lost cannot be insured and even where there is insurance, what is lost on a personal, family-to-family level cannot be replaced. Yet we see selfless efforts to help survivors, most of whom will demonstrate a remarkable ability to endure. So much of what is precious to these people has been lost, but they will move on. That’s human nature at its best.
Meanwhile, the reinsurance market, long in the soft-market doldrums, will finally begin to harden. We will all pay a little more for insurance – and we will complain about it. That, too, is human nature, not at its best, perhaps, but a reflection of these tumultuous times.
