July 1 represents the last major renewal period of the year. As we wrap up the majority of placements for 2011, there are several occurrences that have played a key role in the positioning of the market. Chief among the critical 2011 events are the global catastrophe losses and the release of RMS v11, both of which had an impact on reinsurers’ capital positions and views of risk. The longer term impact of both of these factors remains somewhat unclear as losses from recent events are not fully developed and there is not a consensus position on the integration of RMS v11.
During the first quarter of 2011, the Guy Carpenter Global Reinsurance Composite’s dedicated capital position fell by 4.2 percent to USD163.7 billion (Figure 1). This was driven by net losses caused by significant reinsured catastrophes. In the second quarter, reinsured catastrophe losses were again above average, with the result that the reinsurance capital remained essentially flat over the quarter and moderately down year-to-date.
The moderate decline in capital over the first six months has corresponded to a mitigation of share repurchases. It also contributed to firming in rates-on-line of property catastrophe business underwritten at the April 1, June 1, and July 1 renewals.
The development of the reinsurance sector’s capital position over the remainder of the year is now heavily dependent on large loss experience, which will in turn be influenced by the hurricane season. A light hurricane season with no significant landfalls could enable reinsurance capital to resume growth, while a heavy season with at least one significant landfall could mitigate growth or even result in an impairment of capital for the remainder of 2011.
Catastrophic Events of 2011
The first six months of 2011 saw massive losses from global catastrophes. A series of powerful earthquakes in New Zealand and Japan, combined with multi-billion dollar payouts from tornadoes and floods in the United States and Australia, meant the (re)insurance industry experienced the most costly first half on record. Losses of around USD70 billion are estimated for the period. At least nine natural catastrophes incurred insured losses of more than USD1 billion during the first half of 2011. Five were related to tornadoes and severe weather in the United States (causing a combined insured loss of more than USD14 billion). Australia sustained two major losses when floods inundated parts of Brisbane City in January and Cyclone Yasi made landfall in northern Queensland the following month.
However, the heaviest losses of the year, so far, were triggered when two of the most damaging earthquakes in recent times struck New Zealand and Japan. Thousands of buildings were destroyed in Christchurch, New Zealand’s second largest city, after a shallow 6.3Mw earthquake shook the region in February. In Japan, meanwhile, more than 23,000 people were killed or left missing after a 9.0Mw earthquake struck off the country’s northeastern coast in March. The event caused severe shaking along much of Japan’s eastern coastline and triggered a massive tsunami that devastated coastal communities. Tens of thousands of buildings were destroyed or damaged by the Tohoku earthquake, which was the largest to hit in Japan since modern instrumental recordings began 130 years ago.
Figure 2 shows the accumulation of significant losses over the last 18 months. The losses sustained so far in 2011 have already surpassed those recorded in 2010 and 2009 combined. It is against this backdrop that the (re)insurance industry faces the 2011 hurricane season.