Guy Carpenter today published a new report highlighting emerging risks facing the (re)insurance sector, including cyber-attacks, terrorism and new compensation structures for long-term bodily injuries. The report seeks to identify and categorize these risks that are now confronting the sector, as well as analyze their implications on businesses and (re)insurers.
Posts Tagged ‘US’
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).
Despite this increase in terrorism market capacity, it is not sufficient on its own to provide comprehensive terrorism cover in the United States. According to a Guy Carpenter (re)insurance capital study, dedicated global capital to the US (re)insurance market is estimated to be approximately USD700 billion (1). Catastrophe models that produce nuclear, biological, chemical or radiological (NBCR) event scenarios estimate losses from a large nuclear attack in Manhattan (at greater than USD900 billion) would likely exceed the total amount of capital in the US market (see figure below). The study consequently concludes that the (re)insurance sector does not have the capital necessary to withstand such a scenario. Some form of federal backstop is therefore needed if the private (re)insurance market is to continue to provide capacity to higher risk areas.
Prior to September 11, 2001, coverage for terrorism-related losses was generally included in standard catastrophe reinsurance agreements without specific charges. However, the USD20 billion loss that reinsurers paid out following the September 11, 2001 attacks prompted companies to quickly exclude terror coverage in standard agreements for most lines of business. Terrorism exclusions therefore became standard in catastrophe reinsurance programs at the January 1, 2002 renewal, seriously diminishing the availability of terrorism reinsurance capacity. Concerned that the lack of terrorism coverage would hit the American economy, the US Congress passed the Terrorism Risk Insurance Act (TRIA) into law in November 2002.
The focus on the availability and affordability of terrorism (re)insurance coverage comes as the US House of Representatives and Senate are currently considering various changes to Terrorism Risk Insurance Program Reauthorization Act (TRIPRA). TRIPRA expires on December 31, 2014 and the future of the federal backstop is the headline issue within the terrorism market this year given that either substantial modification or non-renewal have the potential to impact terrorism coverage in the United States. The full Senate passed their committee’s recommended version 93-4 on July 17, 2014. The House of Representatives has yet to vote on their version. Implications could also be felt outside the United States. How the expiration of TRIPRA would affect the global terrorism market remains unclear but one possible outcome could see increased pressure on other pool structures to dissolve, resulting in fragmentation towards a more open market approach.
A 6.0-magnitude earthquake was reported by the U.S. Geological Survey (USGS) about 4 miles northwest of American Canyon, California and five miles north-northwest of Napa, California. The quake occurred at 3:20 a.m. local time (10:20 UTC) near the north shore of San Pablo Bay, with a magnitude of 6.0. The quake depth was 7.0 miles (11.3 km).
Despite the recent spike in terrorist-related activity, evolving capacity and the absence of a major terrorism loss for reinsurers have resulted in a softening terrorism reinsurance market in areas with less perceived risk. Although localized terrorism and political violence activity has impacted certain facultative programs and affected pricing and capacity at the local level, adequate terrorism capacity continues to be available in the reinsurance treaty marketplace for certain countries and territories.
The spillover of violence from Syria to other Middle Eastern countries is a clear risk in 2014 and beyond. The conflict, and the sectarian tensions that underpin it, could destabilize a number of countries that share borders with Syria and be a catalyst for further violence in countries such as Lebanon, Iraq, Turkey and Jordan. Islamic State in Iraq and the Levant (ISIL) has already exploited conditions in Syria to its advantage in Iraq, where the level of violence is at its highest for a number of years. The group has also made significant territorial gains in Iraq recently, advancing its aim of creating a caliphate in parts of Syria and Iraq.
Despite being overshadowed by the transnational Islamist terrorist threat since September 11, 2001, a number of destructive and costly attacks have been carried out by non-Islamic domestic groups and individuals. These include the Irish Republican Army (IRA) in the United Kingdom, Timothy McVeigh of the Oklahoma bombing in the United States and the Tamil Tigers in Sri Lanka. Such acts have resulted in significant property losses for (re)insurers. Indeed, as shown below, seven of the top ten most costly terrorist attacks (in terms of insured property losses) between 1990 and the first quarter of 2014 were carried out by these domestic groups.
Tropical Storm Iselle made landfall at about 2:30 a.m. HST (1230 UTC) today along the Kau Coast on the Big Island, according to the Central Pacific Hurricane Center (CPHC). Maximum sustained winds at landfall were 60 mph, with higher gusts especially at higher elevations. Iselle was moving slowly leading to excessive rainfall accumulations. Resulting flooding has been extensive, together with reports of downed trees and power lines for affected areas. Roads are blocked with debris and downed trees, and power outages have affected at least 33,000. Some roof damage has been reported. There are no reports of deaths or major injuries.