Casualty catastrophe occurrences have become increasingly common over the past decade. The recent 2008 financial catastrophe is the easiest to cite, due to its sheer size and the fact that it continues to unfold even today. But, there have been many others. The collapse of the “dotcom economy” led to scandals around initial public offering laddering and equity analyst conflicts of interest. Accounting firms were not alone in suffering financial loss related to such debacles as Enron, WorldCom, Tyco and Adelphia. While insured losses did not reach those of property catastrophes, economic damages were profound. Enron’s loss of USD66 billion in market capitalization alone - not including the economic damage caused to other companies - was more than double that of Hurricane Ike (approximately USD30 billion). The financial catastrophe is estimated to have caused economic damage of above USD1 trillion, with more likely to follow. When considered in the context of the Deepwater Horizon industrial accident, the casualty catastrophe that unraveled from the largest US offshore energy event over the past 40 years was by no means remote. Beyond the initial property loss of the actual drilling rig, liability risk in paying claims continues to extend and ripple throughout the supply chain involved as well as the environmental impact to numerous coastal and commercial businesses. Asbestos litigation, perhaps the longest casualty catastrophe on record, has paid out over USD70 billion and by some accounts may be entering its third wave. Therefore, asbestos is an emerging crystalizing risk that needs to be continuously monitored, measured and modeled for those who continue to be exposed to it.
Posts Tagged ‘Catastrophes’
Casualty (or liability based) catastrophes have become increasingly frequent and severe over the past decade, exposing (re)insurers to much more risk than they may have realized and reserved for. One root cause can trigger a chain reaction that can bleed balance sheets and even imperil solvency. Until recently, casualty carriers had little choice but to accept this risk as losses emerged.
Guy Carpenter today released Part One of a two-part series report detailing a ten-year retrospective on the 2004 and 2005 Atlantic Hurricane Seasons - two landmark years that were not only significant for their weather events, but for their lasting effects on the (re)insurance industry. The report examines the meteorological conditions that contributed to the weather activity characterizing both hurricane seasons, as well as the impact on underwriting and claims adjusting practices, cat modeling, and the Florida Hurricane Catastrophe Fund (FHCF).
Here we review how the application of risk management practices and risk transfer can assist individual countries and small geographic locations with providing food security for the populace.
What is Food Security? Part I: Fundamentally food has to be safe, nutritious and available in sufficient quantity. On a global scale these are always achievable. It is at a country or smaller geographic territory-level where problems often arise.
What is Food Security? Part II: A challenge in many regions is the transport from the farm of the right food to the consumer without physical loss or spoilage. Putting transit losses aside, there is a question of getting the “correct” food and influencing the supply chain.
What is Food Security? Part III: Putting It into Practice and a Look to the Future: In several Asian countries there are already examples of attempts to alleviate the physical, social and economic factors that hamper food security. China in particular is rapidly developing a sophisticated agriculture insurance system with evidence of a number of different risk transfer instruments.
Here we review GC Capital Ideas entries highlighting Europe’s embrace of periodic payment orders over traditional lump sum payments for the settlement of bodily injury claims.
Time Off for Certain Behavior: The Courts Act of 2003 fundamentally changed the way that catastrophic injury claims are settled by insurers. It gave the courts the power to enforce a periodic payment order (PPO) as compensation instead of an upfront lump sum payment. A PPO is an annuity payment from the insurer to the claimant, and is designed to cover ongoing care costs, loss of earnings and other expenses associated with the injuries sustained for the rest of the claimant’s lifetime.
Chart: Prevalence of Annuity Settlements in Europe: For bodily injury claim settlements in Europe, the trend is shifting away from lump sums and towards annuity-type settlements, which come with risks related to longevity, inflation and hedging.
Here we review GC Capital Ideas entries highlighting trends in convergent capital in the reinsurance sector.
Chart: Evolution of Dedicated Reinsurance Capital, 2012 - YE 2013: The evolution of dedicated sector capital is presented in this chart. Guy Carpenter estimates this rose marginally in 2013 to USD322 billion at year-end as underwriting profits from low catastrophe claims and convergence capital inflows offset unrealized losses, sustained share buybacks and dividend payments.
Chart: Catastrophe Bond Issuance and Capital Outstanding: Issuance reached a record high of USD7.1 billion, surpassing 2007’s total. Risk capital outstanding also reached an all-time high of USD18.6 billion last year.
Chart: Pension Fund Capital Under Management and Allocations into Reinsurance: As the illustration shows, pension funds alone are worth around USD30 trillion. Based on Guy Carpenter’s analysis of possible capital allocation percentages to the (re)insurance space in consultation with sector experts, a maximum of USD900 billion of this amount could potentially be available for insurance-linked investments.
*Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/NFA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd. (MMCSEL), which is authorized and regulated by the Financial Conduct Authority, main office 25 The North Colonnade, Canary Wharf, London E14 5HS. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product. **GC Analytics is a registered mark with the U.S. Patent and Trademark Office.
The Guy Carpenter Asia-Pacific Climate Impact Centre (GCACIC), a joint initiative of the City University of Hong Kong and Guy Carpenter, today released its fifth annual report presenting the highlights of the GCACIC’s research activities from the past year. The report details the findings of 16 projects conducted by the GCACIC, which focus on climate problems in the Asia-Pacific region as well as on a global scale.
Here we review recent GC Capital Ideas stories related to the Asia Pacific region.
Asia/Australasia Catastrophe Review, 2013: Asia and Australasia also received their share of both natural and man-made catastrophes in 2013. One of the most costly man-made events occurred in China after a major fire hit a large microchip factory in September. The blaze caused significant damage to the SK Hynix-owned facility in the city of Wuxi, with reports saying the cost to the (re)insurance sector is expected to range between USD900 million and USD1 billion. The incident represents the most expensive single-risk loss on record to occur in China.
Guy Carpenter Extends Coverage of Industrial Park Database to Include Vietnam, Malaysia and South Korea: In 2011, Thailand experienced its worst flooding in years with insured losses estimated at around USD15 billion, of which the Thai General Insurance Association attributed more than 90 percent arising from commercial risks located within industrial parks. As industrial parks are common in several countries in the region, Guy Carpenter developed a database of digitized boundaries of these parks to support its clients’ ability to analyze the potential for catastrophic losses arising from exposures located within park boundaries.
Demand for Asia Pacific Catastrophe Reinsurance at a Record High in 2013: Total Asia Pacific catastrophe limit purchased in 2013 increased for the tenth year in a row, but once again failed to keep pace with strong gross domestic product growth in the region, according to a report released by Guy Carpenter.