NU Online News Service, June 8, 11:35 p.m. EDT
Munich Re estimates that its losses from the Feb. 27 earthquake in Chile will cost $1 billion, and with other natural catastrophe losses continuing to mount, the company said there is a need for price increases.
The Munich, Germany-based company said the earthquake in Chile caused exceptionally heavy losses and also triggered a devastating tsunami. The company said providing a reliable forecast of the overall burden has been difficult up to now due to the low primary insurer retentions, high proportion of individually (facultative) reinsured production facilities and buildings, and ongoing business interruption losses.
Individual losses were also high with local insurance companies having received more than 190,000 claims notifications by the end of April, Munich Re pointed out.
The country’s insurance density is comparable with that of some European countries, Munich Re said.
The earthquake was the fifth strongest since records began in 1900, the company noted. Nearly 350 people lost their lives.
In addition to Chile’s high commercial and industrial insurance density, the country also often insures infrastructure items such as motorways, Munich Re said.
The company said it believes the market loss will be in the order of $8 billion, and currently estimates its own burden to be around $1 billion after retrocession and before taxes.
At the end of April, Munich Re had assumed the loss burden would be approximately $700 million.
Munich Re’s Geo Risk experts concluded from this and the high number of other catastrophic events in the early part of this year that the long-term trend toward higher natural catastrophe costs is continuing.
In addition to the losses in Chili, there have been hailstorms in Australia, and Winter Storm Xynthia in Europe.
Munich Re said it anticipates a reinsurance claims burden of around EUR70 million ($83.6 million at the current exchange rate) for Xynthia and EUR160 million ($191 million) for two hailstorms that occurred in Australia in March.
In addition, the company anticipates losses from floods on the Rivers Oder and Vistula in Central Europe this week. Figures are not yet available, Munich Re said.
Munich Re said expected climate change-driven increases in catastrophes in the coming decade add to the risk burden.
Additionally, the company said steadily increasing insured values have meant a substantial rise in exposures, thus risks, over the years.
“Events like Chile’s devastating earthquake reinforce our case for insisting that risks be consistently written at adequate prices, even after years where losses have been relatively low,” noted Torsten Jeworrek, Munich Re’s Reinsurance chief executive officer.
The company said the past has shown that current loss experience heightens market players’ awareness of the risks.
Regarding July 1 renewals in parts of the United States market, Australia and Latin America, Munich Re said it anticipates price increases in loss-affected regions and business segments.
“Whether production-facility or infrastructure losses, our job as reinsurers is to bear catastrophe burdens,” said Mr. Jeworrek. “Because we possess the necessary know-how, writing natural catastrophe business has always been profitable for us over the years.”