Hamish Dowlen, Senior Vice President
2008 Reinsurance Market Position
The Romanian market is currently awaiting the implementation of an earthquake and flood pool. This is expected to reduce insurers’ first-loss exposure to these perils for residential risks. Until the pool is implemented, a number of local catastrophe programs can be bought.
Capacity is widely available, because Romania is not considered to accumulate with Northern European windstorm-exposed countries. Reinsurers thus have the opportunity to diversify their portfolios in Europe. Programs are spread widely among Continental European, London, and Bermudian reinsurers. Prices have remained stable due to excellent loss histories in recent years.
Nevertheless, local insurers need to monitor exposures carefully. As their portfolios are growing rapidly, carriers are becoming more reliant on earthquake models to ensure that they purchase sufficient cover. Several larger insurers regularly purchase new top layers mid-year to respond to exposure growth since the inceptions of their catastrophe programs.
Romania is one of Europe’s most seismically active countries, with most of the activity occurring in the Vrancea region at the eastern end of the Carpathian Mountains. As a result, earthquake is Romania’s principal natural peril. High magnitude earthquakes occur, on average, every 40 to 50 years in Romania. In the last 1,000 years, 322 earthquakes of above magnitude 5.0 have been recorded. Thirty-eight have been above magnitude 7.0. The last significant earthquake to hit the country was in 1977. Losses exceeded USD2 billion.
Romania is also affected regularly by flooding and hail. Flooding affects close to 13 percent of the country. There are two distinct flood seasons. The first occurs between December and March, when the western, central, and northern parts of the country can be affected by a combination of melting snow and heavy rain. The second season, from May to September, is caused by torrential rain and occurs mostly in the eastern, central, and northern parts of the country.
In the summer of 2005 and spring of 2006, significant flooding caused widespread damage and economic loss to Romania’s farming community. Since insurance penetration is negligible in this sector, no significant insured losses were reported.
Insurance penetration for most insurance lines in Romania is relatively low, likely below 20 percent for the property sector. Premium spend per capita is approximately USD100, but the market has been growing rapidly. Total non-life premium in 2007 was USD2.3 billion. Property insurance is widely available at very competitive rates and generally includes natural perils with the standard fire, lightning, explosion, aircraft (FLEXA) conditions.
Household policies tend to include coverage for earthquake, storm, and flood – the last of which underwriters tend to exclude (or increase policy charges) in heavily exposed parts of the country. Also, it can be quite difficult for non-reinforced buildings in earthquake-exposed zones to secure earthquake coverage from local insurers.
Commercial and industrial policies tend to include all major natural perils, though the market is increasingly introducing sub-limits for earthquake. It may become compulsory for agricultural insureds to purchase flood and drought insurance for at least 50 percent of their land. This is due to be introduced in the near future.
The government continues to work with a consortium of major reinsurance brokers to establish a pool for earthquake and flood perils. The concept should provide cover of USD27,000 to all standard residential risks, though there is no indication of when it will take effect. Excess policies, as well as policies for commercial and industrial risks, would continue to be available on the open market.
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Hamish Dowlen, Senior Vice President