The April 1 renewal has provided a clear indication of how the near record catastrophe losses in 2011 - two-thirds of which occurred in Asia - have affected (re)insurance rates in Japan. April 1 is a significant renewal date for Asia-Pacific markets and for Japan in particular.
2011 was a year of historic catastrophe losses for the global property/casualty sector, with total losses exceeding USD100 billion. The largest catastrophes of the year - the Tohoku earthquake, the New Zealand earthquake and floods in Thailand and Australia - all occurred in the Asia-Pacific region. These events had a significant impact on both primary insurers in the region and on global reinsurers. Japanese insurers were hit particularly hard as many insureds relocated manufacturing operations to facilities in Thailand after the Tohoku earthquake, only then to be hit by flooding there.
Revisions to original loss estimates for some of these events continue to impact the industry. There is also a growing expectation that the Thailand floods will result in ultimate market losses of between USD15 billion and USD20 billion.
By contrast, loss activity during the first three months of 2012 has been relatively light. Insured losses during the quarter are expected to be less than USD5 billion, significantly lower than losses of over USD50 billion in the first three months of 2011. The sinking of the Costa Concordia, regional tornado outbreaks in the United States and earthquakes in Mexico and Chile were the most significant losses that occurred in the first quarter of 2012.
Despite the heavy losses of 2011 the reinsurance sector continues to function normally and has sufficient capital to support the Asia-Pacific region and the global property/casualty (PC) industry with reinsurers continuing to support the Japanese market at April 1. Figure 1 shows the evolution of shareholders’ funds for the Guy Carpenter Global Reinsurance Composite and illustrates the stability of capital levels for the reinsurance sector.
The April 1 renewal period was nevertheless challenging. Reinsurers are becoming more sophisticated in their analysis, requiring more information and delivering more customized approaches. While capacity was available it was offered at a higher price and often with tightened terms and conditions. New capacity did enter the market from a small number of new entrants but Asia-based reinsurers were capacity constrained. As a result, property catastrophe renewal rates on line increased significantly in the region in most cases. Casualty lines saw mixed results with a trend of modest increases. The price increases were no surprise to most of the marketplace due to the events of the past year and a global trend of overall market hardening.