Tom Davies, Deputy Head of Bowring Marsh London
Bowring Marsh is the International placement arm of Marsh, where we advise our global network and clients on direct, market based solutions, predominantly for property and casualty exposures. The vast majority of our clients are sophisticated, risk management buyers with an emphasis on global, multinational businesses.
In this article I am going to focus on the policies issued outside of Japan, what we have seen to date, and the impact on the direct, commercial marketplace.
It is fair to say, at this stage, we have seen little concrete information following the March 11, 2011 earthquake in Japan. However, a number of insureds have put markets on notice for a possible loss. These fall in to two main categories: companies suffering damage to owned assets and those with a possible indirect, contingent business interruption (CBI) loss.
While we have identified all our clients with direct exposures in Japan, it has been difficult, heretofore, to get many specific details as a result of infrastructure challenges and denial of access. Many loss adjusters are still not able to get in to make on-the-ground investigations and assessments.
Unsurprisingly, the CBI element is taking insureds significantly longer to evaluate the impact on production and sales as they review damage to their suppliers and customers. While it is evident the technology and automotive companies and suppliers in Japan, among other sectors, have been impacted, several are reviewing the effects on their businesses - e.g., reviewing source of suppliers, alternatives and possibly rescheduling their manufacturing as a result.
It is worth noting, in reference to the above, that the majority of commercial policies have program sublimits for earthquake and CBI. Additionally, the vast majority of clients do not yet have definitive loss estimates, as they continue to do their due diligence alongside adjusters, forensic accountants and sector experts.
And finally, looking at our April multinational renewals, while we were seeing rate reductions across the multinational portfolio prior to the March 11 earthquake, the subsequent commercial rating environment was predominantly flat, and in a number of cases where clients had notified markets of a loss as a result of the earthquake, many policies had an adjustment feature in the region of a 10 percent additional premium based on final, paid loss. The benefits to clients taking this path was an avoidance of being swept up in any speculation around the quantum of the loss, owing to the fact that there is still a lot of fact finding to be done.
This week, Guy Carpenter is running a series of articles about the state of the reinsurance market in Japan that can be used to help you manage your capital effectively. To have these articles delivered directly to your inbox every day, click here to register for our GC Capital Ideas alerts.