Reinsurance Round-Up

A plethora of April 1 reinsurance market reports are out, all of which are worth a read. They point to pockets of rate hardening across the global reinsurance market and the ongoing influence of currency fluctuations and other factors on capacity:Â  

  • Aon Benfield’s Reinsurance Market Outlook sees continued hardening for property catastrophe renewals in June and July where Florida risk is dominant. It notes that important decisions on Florida private market capacity await conclusions from the state’s legislature. Possible new legislation to reduce the state-run Florida Hurricane Catastrophe Fund’s (FHCF) potential $18.5 billion shortfall may slightly increase demand for private reinsurance for the 2009 hurricane season.  Ã‚  

  • A new report from Willis Re says the reinsurance market stands out as the only capital market operating smoothly amid the financial downturn, with buyers able to access large quantities of contingent capital. However, increased reinsurance pricing is leading to greater focus on original policy terms and conditions as buyers and sellers try to match risk protection against expense constraints stemming from the global economic slowdown.  Ã‚  

  • In its Reinsurance Market Outlook for 2009, Guy Carpenter describes the first half of 2009 as a waiting game, as cedents and markets examine major financial developments both inside and outside the industry. Dramatic events are possible and if catastrophe forecasts are met or exceeded, insured losses will mount. “Another September surprise could have devastating repercussions, but signs of an economic recovery and a mild catastrophe year could have the opposite effect.† Risk managers have only one alternative: manage to the extremes and heed the lessons of 2008.

Check out I.I.I. information on reinsurance.

Storm Surge Warnings

Storm surge warning and forecast is one of the many topics up for discussion at next week’s National Hurricane Conference in Austin, Texas. Ahead of this year’s hurricane season and following the impact of Hurricane Ike along the Texas coast last September, this is an important debate. Over at Weather Underground, Dr. Jeff Masters’ Wunderblog reports that the National Hurricane Center (NHC) is considering removing any mention of storm surge from the Saffir-Simpson Hurricane scale (wind speed is the determining factor in the current scale, though flooding is included as well). The change is a step towards separate storm surge warnings which the NHC is apparently considering. Hurricane Ike may have reignited the debate, but storm surge has long presented the greatest threat to loss of life in a hurricane to say nothing of potential property damage.

An NHC report notes that storm surge losses in the hundreds of thousands of lives have occurred in every coastal state from Texas to South Carolina, and in some states north (e.g. the New England hurricane of 1938). Hurricane Katrina in 2005 is a recent example of enormous loss of life and property associated with storm surge. From the insurance perspective, any distinction that can be made between wind and storm surge will be welcome. Homeowners’ insurance policies do not cover damage from flooding or storm surge. Flood insurance policies, available from the National Flood Insurance Program (NFIP) pay for losses caused by flooding or other forms of rising water such as storm surge. Yet a 2008 I.I.I. poll found that only 17 percent of Americans have a flood insurance policy. Check out further I.I.I. information on flood insurance.