NU Online News Service, June 6, 2:45 p.m. EDT
NEW YORK—"Geographic diversity is not a hedge against loss," a Chartis executive says—a lesson amplified for the industry after it suffered more than $100 billion in losses from events in 2011.
Sanjay Godhwani, property product-line executive for Chartis, speaking at Advisen's Property Insights Conference here yesterday, said, "Mispricing exposure offsets diversification," and the industry had limited or poor data for many of the events in 2011 because the events were not modeled. Therefore, the industry had no secondary viewpoint of risk as it does with hurricanes or earthquakes.
The earthquake and tsunami in Japan, tornadoes in the U.S., Hurricane Irene, and flooding in Thailand provided the industry with a significant catastrophe during every quarter of 2011, Godhwani says.
This isn't to mention the many other events during the year, such as U.S. flooding and earthquakes in New Zealand. Plus, nonmodeled losses from floods, storms, tornadoes and wildfires were prevalent.
Catastrophe losses paid were more of a hit to insurers' earnings than to capital, but the losses could potentially have capital implications.
Going forward, Godhwani says it will be interesting to see how many insurers make a more concerted effort to declare, "I'm only going to insure what I know."
Reinsurers are also exhibiting some lack of comfort in taking on non-modeled risk, like tornadoes. He says some were so bothered with 2011, that in the 2012 first quarter some reinsurers mentioned excluding tornado coverage.
Godhwani later clarified his statement to say reinsurers failed at the exclusion, but the fact they spoke about it points to unease in the understanding of tornadoes.
"A year ago this wasn't even an issue," he says.
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