Hanspeter Hilfiker, Senior Vice President
2008 Reinsurance Market Position
Earthquake is covered through an Interkantonaler Rückversicherungs-Verband (IRV) fund in 18 of the 19 monopoly cantons. It has a total capacity of CHF2 billion (USD 1.8 billion). The earthquake coverage provided by the monopoly insurers is voluntary and does not require any additional premium. One monopoly insurer, Zurich Cantonal Institute, covers earthquake for buildings in the remaining canton; it has capacity of around CHF 1billion (USD 0.9 billion). In addition to earthquake, the IRV covers its elemental perils exposure with stop-loss cover with capacity of up to CHF550 million (USD 500 million).
The private insurance industry pools its elemental perils exposure through the Swiss Insurance Association (SIA), which is protected by a stop-loss cover with capacity of CHF1.2 billion (USD1.1 billion). Further, the SIA buys a small earthquake cover with capacity of CHF200 million (USD 189 million) for ex gratia payments in case of a loss.
Natural hazard events in 2007 caused substantial insured losses. SIA has adapted the original coverage in 2007 by increasing retentions and premium rates. Elemental perils reinsurance coverage was not affected by 2007 losses, resulting in stable reinsurance premiums for 2008. Some programs with major losses in 2007 experienced premium increases. On average, though, natural catastrophe premium levels decreased slightly through 2008. Rates for the Swiss earthquake cover remained stable in 2008.
Only a few catastrophe models are currently available for Switzerland. The existence of monopoly insurers and of the elemental perils pool made Switzerland’s requirements for such models different from those of other European countries. Increasingly, Swiss insurers are considering the development of models, mainly for flood.
Between 2002 and 2008, the IRV’s elemental perils stop-loss capacity increased by 25 percent. Premium increased by more than 40 percent. For earthquake, retention growth of 10 percent and stable capacity caused a premium decrease of 20 percent between 2002 and 2007.
The situation is similar for the private insurance sector. SIA’s elemental perils pool increased retention and capacity of its stop-loss cover by 20 percent, at a premium increase of above 20 percent, between 2002 and 2008. Capacity and premium levels for earthquake have been stable.
Switzerland is exposed to many natural hazards, including thunderstorm, hail, avalanches, and flooding (smaller local rivers). The country as a whole is exposed to windstorms, floods, and earthquakes. Floods and winter storms are generally the highest frequency exposures.
A major earthquake has the greatest potential to result in a severe economic loss. The 500-year event for all of Switzerland is estimated to be around CHF16 billion (USD 15 billion) -CHF13 billion (USD 12 billion) for building, CHF3 billion (USD 2.7 billion) for contents - according to the AIR Swiss Earthquake model.
Hailstorms occur often in the summer, mostly in areas close to the Alps. Despite typically being local events, these storms can cause severe agricultural and motor physical damage. A hail storm in July 2004 over Zurich caused an overall insured loss of CHF140 million (USD 127 billion). Modeled scenarios show potential motor damage losses of more than CHF300 million (USD 273 million) around Zurich.
Switzerland has experienced major floods in 1999, 2000, and 2005 - as well as one major winter storm, Lothar, in 1999. Switzerland’s biggest flood loss in history occurred in August 2005, with insured losses of more than CHF2 billion (USD 1.8 billion) from buildings, content, business interruption, and motor vehicle damage. In 2007 several hail storms and floods caused substantial insured losses.
Switzerland is divided into 26 cantons. Total building insurance premium amounts to more than CHF2 billion (USD1.8 billion; content cover is approximately CHF800 billion (USD 727 billion). In 19 cantons, insurance for buildings is obligatory and provided by monopoly insurers. The canton monopoly insurers cover the fire, lightning, explosion and aircraft (FLEXA) perils and elemental perils only. The latter are defined by law and include flood, storm, hail, avalanche, snow pressure, landslide, rock fall, rockslide, and earth slip.
The private insurance industry covers contents all over Switzerland, as well as the buildings in non-monopoly cantons. Personal lines insurance covers atmospheric perils and earthquake through additional premiums, based on a standard policy.
While industrial risks also tend to be insured on a named-perils basis, the elemental perils extension (extended coverage) combines storm and the other elemental perils. It is generally sold together with the standard fire policy. Elemental perils coverage for industrial risks, therefore, has a high market penetration.
In Switzerland, earthquake insurance is not mandatory, for the time being. However, the country plans to implement a mandatory earthquake insurance solution with appropriate reinsurance protection by January 1, 2010. Earthquake coverage is available, mainly with a retention of 10 percent of the sum insured. Nevertheless, only a minority of Swiss households buy earthquake protection.
- Pasquale Taddeo, Vice President