Sixteen global reinsurers have reported approximately $3.5bn in estimated pre-tax, net losses arising from the severe Chilean earthquake and Windstorm Xynthia in Europe, Moody's Investors Service notes in a new report.
The rating agency believes the first quarter net income of 2010 will be substantially reduced for most of these firms, with a number of companies likely to report both operating and net losses during the quarter.
Global reinsurers in particular are expected to bear a portion of ultimate insured losses from these extreme events. This burden is assumed through both quota-share and catastrophe excess-of-loss reinsurance treaties with primary insurance company cedants. Some firms are also exposed to retrocessional reinsurance covers sold to their reinsurance peers.
From a capital perspective, Moody's believes that the losses are generally manageable. But much uncertainty still remains around these loss estimates. Most reinsurers appear to be making guesses based on market share percentages of possible industry-wide insured losses, said James Eck, Moody’s vice president and a senior analyst.
“Moreover, ceding companies have been slow to provide solid loss estimates to reinsurers because they remain circumspect about the true extent of damage, particularly in Chile,” added Eck.
| 2009 total market share of property gross written premiums |
|
|
|
| RSA |
18.5% |
|
| Penta |
11.6% |
|
| Mapfre |
10.7% |
|
| Chartis |
9.6% |
|
| Liberty |
8.5% |
|
| Zurich |
8.5% |
|
| Santander |
8.3% |
|
| Cardif |
6.3% |
|
| BCI |
5.4% |
|
| Ace |
5.3% |
|
| Magallanes |
3.6% |
|
| Chubb |
1.5% |
|
| ISE |
1.1% |
|
| Consorcio |
1.1% |
|
| Renta |
0.7% |
|
| Others |
0.3% |
|
| Source: Latino Insurance/Aon Benfield |
In light of the fairly large losses sustained so early in the year and the uncertainty surrounding initial loss estimates, Moody's expects reinsurers will reevaluate their announced share repurchase plans.
“We view the capital cushion for significant share buybacks to have thinned considerably as a result of these recent catastrophe events,” said Eck. “If the hurricane season in the Atlantic Ocean is an active one, and catastrophe losses continue to accumulate companies could experience capital strain, and even find themselves vulnerable to ratings downgrades in the absence of timely equity recapitalisations."
According to Aon Benfield, the Chilean earthquake, the fifth strongest earthquake recorded has the potential to generate the second-largest insured earthquake loss, after the 1994 Northridge earthquake that occurred in the US.
The latest estimates reported by the Chilean Insurance Association, catastrophe modelling companies and reinsurers are an insured loss of between $2bn and $8.5bn. Although it is a substantial loss for the Chilean market, Aon Benfield does not foresee primary pricing and reinsurance pricing outside of Chile will change.
According to Aon Benfield, the Chilean insurance market is the fifth largest market in Latin America with overall gross written premiums, including life and health, of $6.3bn as of 2009. Chile’s property market represents the third largest in the region with property premiums, including earthquake cover, at $1.4bn.
Reinsurers' loss estimates as of March 19
| Reinsurers |
Estimated losses from Chile |
Estimated losses from Xynthia |
Combined estimated losses |
4Q2009 Shareholders Equity |
Midpoint/Best estimate pre-tax net losses % 4Q2009 Equity |
Midpoint/Best estimate pre-tax net losses % 1Q2009 Equity |
| Ace |
|
|
$75m* |
|
|
|
| Axis |
$60m to $125m |
$10m to $20m |
$70m to $145m |
5,500 |
2.0% |
63% |
| Endurance |
|
|
$65m |
2,787 |
2.3% |
74% |
| Everest Re |
$225m |
$25m |
$250 |
6,102 |
5.1% |
224% |
| Flagstone Re |
$50m |
$3m to $6m |
$53m to $566m |
1,211 |
4.5% |
160% |
| Hannover Re |
$250m |
$54m |
$304m |
6,121 |
5.0% |
97% |
| Harbor Point |
|
|
$25m |
|
|
|
| Hiscox |
|
|
$152m |
1,818 |
8.2% |
148% |
| Max |
|
|
$10m to $20m |
1,565 |
1.0% |
62% |
| Montpelier |
$75m to $100m |
$10m |
$85m to $110m |
1,729 |
5.3% |
177% |
| Munich Re |
$677m |
135m |
$812m |
32,056 |
2.1% |
59% |
| Partner Re |
$220m to $320m |
$40m to $70m |
$260m to $390m |
7,646 |
4.3% |
137% |
| Platinum |
$85m |
|
|
2,078 |
4.3% |
122% |
| RenaissanceRe |
|
|
$250m |
|
|
|
| Scor |
$129m |
$47m |
$176m |
5,613 |
3.8% |
106% |
| Swiss Re |
$500m |
$100m |
$600 |
25,247 |
2.4% |
25% |
| Transatlantic |
|
|
$60m to $90m |
4,034 |
2.3% |
67% |
| Validus |
$170m to $270m |
$20m to $30m |
$190m to $300m |
4,031 |
6.1% |
167% |
| XL Capital |
$140m to $205m |
$20m to $25m |
$160m to $225m |
9,430 |
2.1% |
68% |
Note: Estimated figures have been reported on a gross, net loss and pre-tax basis.
*Ace estimates a combined loss for the quarter of $125m including Madeira floods in Portugal, the Australian hailstorms and US winter storms
Sources: Aon Benfield Research, Moody's and company statements