Mini-catastrophes Cost Insurers $100 Billion
Although 2005 was marked by no major catastrophes, there were an unusually large number of both tropical storm and thunderstorm systems throughout the summer and early autumn, as well as a series of moderate earthquakes in the Northeast, Midwest, and California.
As the hurricane season came to a close, broker X and reinsurer Y launched a new securitization deal that links dozens of small insurers to shed catastrophe and investment risk.
Implications for p-c insurers:
The personal lines property market is hardening and availability problems are developing in many parts of the country. Restricted markets are giving rise to a public outcry for full coverage of catastrophe perils at an affordable price.
The catastrophe reinsurance market is tightening, even though reinsurers were relatively untouched by most of the mini-catastrophes. Primary companies are embracing more comprehensive risk management tools to assist in evaluating the structure and retention level of their reinsurance programs.
The number of companies looking at securitization deals is at an all time high.
Increasingly concentrated catastrophe exposures pose an escalating solvency threat to poorly-managed property insurers.
The catastrophe reserve has been implemented.
The legal uncertainty surrounding many catastrophe securitization deals continues, as different courts have produced a variety of different verdicts and the appeals on early cases continue to work their way through the legal system.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 30, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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