Moody’s: Thailand Floods to ‘Meaningfully Hit’ Reinsurers’ 4Q Results

NU Online News Service, Dec. 12, 11:27 a.m. EST

After taking into account estimated Thailand-flood losses at Swiss Re and Munich Re, Moody’s Investors Service says it expects the event to “meaningfully hit” the reinsurance industry’s fourth-quarter results, but notes that it should also add to the current momentum for price hardening.

Moody’s says in its Weekly Credit Outlook that it expects the largest global reinsurance players to report the highest losses. “In addition to Swiss Re and Munich Re, these players include Hannover Re, Lloyd’s of London, SCOR, Berkshire Hathaway and Partner Re,” says Moody’s.

Last week, Munich Re said it expects its share of losses from the flooding to be around €500 million ($666.1 million at current exchange rate) net before tax.

Swiss Re said it expects its share of losses from the event to be $600 million.

The floods are due to heavy rainfall that began in July and peaked in October and November. Moody’s says the floods have submerged major industrial areas containing factories belonging mostly to Japanese companies, disrupting the manufacture of electronic key components. Thailand is also a major producer of hard-disk drives for computers around the world, Moody’s notes.

Moody’s says the industrial flooding explains why loses are expected to be high, and adds that reinsurers will “likely bear the majority of this loss through their protection of Thai, Japanese and international insurers.”

Swiss Re has said it expects total insured losses in the range of $8 billion to $11 billion, and Aon Benfield, a subsidiary of Chicago-based insurance broker Aon Corp., says industry losses could exceed $10 billion while total economic losses could come in at around $45 billion.

Stating that reinsurance losses are expected to be meaningful, Moody’s says, “This provides no respite for an industry whose already weak earnings during 2011 have been materially affected by the second-highest level of insured natural catastrophe losses in history.”

Illustrating that point, Moody’s says that the 2011 nine-month net income for its reinsurance cohort is $6.7 billion, compared to $18.8 billion over the same period in 2010.

Despite the large expected losses from this event, Moody’s says that, barring any further catastrophes during the year, global reinsurers should be able to contain the flood losses in their fourth-quarter earnings. “It is possible that one or two players, as a result of significant market share and/or mismanagement of aggregate exposures, may suffer an overall fourth-quarter loss,” says Moody’s. “But even in such a scenario, any effect on capital should be limited.”

Moody’s also maintains that the loss event should add momentum to the hardening prices in the reinsurance industry.

About the Author
Phil Gusman, PropertyCasualty360.com

Phil Gusman, PropertyCasualty360.com

Phil Gusman is Managing Editor of PropertyCasualty360.com. Prior to joining National Underwriter in 2008, he was Editor of Insurance Advocate. Gusman has also served as Associate Editor of Crackdown!, an insurance fraud publication, and Assistant Editor of Empire State Report, which covers New York politics. He graduated in 2002 from Plattsburgh State University in New York. Gusman may be reached at pgusman@summitpronets.com. Follow him on Twitter: pgusman and PC360_Markets

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