NU Online News Service, Sept. 9, 11:45 a.m. EDT

Reinsurers are taking the brunt of insured losses caused by the Chilean earthquake in February, as the country's insurance market cedes about 90 percent of catastrophic risk to the global reinsurance industry, according to Standard & Poor's.

The event has put "a significant dent" in the catastrophe budgets of many reinsurers. "In fact, in many cases, catastrophe losses have already exhausted more than half of reinsurers' budgets, thereby reducing the built-in cushion for the remainder of the year," S&P said in a report, "Reinsurers Foot the Bill For Chilean Earthquake Losses."

Though early estimates of losses were between $2 billion and $10 billion, the range increased to $8-to-$12 billion as more information became available about the extent of damages.

For example, Munich Re in June upped its loss estimate from $300 million to $1 billion, and Swiss Re increased its losses from the earthquake to $630 million from an initial estimate of $130 million.

Since the earthquake in Chile, reinsurers increased rates as much as 80 percent during the July renewal period on Chilean coverages, and S&P said it expects more rate increases for Chile's earthquake risk during the next renewal period in January. Consequently, non-life premium volume in Chile for primary carriers could increase in 2010 and 2011, S&P said.

The Chilean earthquake could become the most costly quake for reinsurers since the 1995 earthquake in Northridge, Calif., and the most costly catastrophe in Latin America.

Ironically, reinsurers had looked to Chile in order to diversify exposures, getting away from more catastrophe-prone areas like the Gulf of Mexico and Florida, S&P said.

With this event, many reinsurers of Chile could reconsider the heightened risk and recalibrate risk appetites.

S&P said most reinsurers are in good shape in terms of financial strength, but an active remainder of the Atlantic hurricane season could change things.

"If a market dislocation were to occur, we believe that not all companies would have the same access to additional capital and financial flexibility, as investors would be very selective in their choice of companies in which to invest," S&P said.

Special Reports /

Reinsurers Raise Rates For Chilean Risk And Pay $8-$12B For Feb. Quake

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