The Intelligent Quarterly from the publishers of The Insurance Insider

Spring 2012

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International catastrophes took a heavy toll on results in the first quarter when a number of events struck in quick succession, but their impact didn't stop there.

As is often the case, the cats have had a sting in the tail.

According to numbers compiled by Insider Quarterly our universe has seen $1.09bn of deterioration on the Q1 cats as the loss picture has clarified. The number may appear modest against the industry-wide figures that have been bandied about, but represents an 8.1 percent increase on reported loss figures.

That figure looks likely to get worse with further deterioration in New Zealand and in Japan. The updated loss notification for the February 2011 New Zealand quake issued by Australian primary insurer Suncorp, which moved the gross claim from A$1.6bn to A$2.02bn, is likely to make matters worse for a number of reinsurers on the middle layers of its cover.

And that mushrooming loss makes the A$1.9bn notification IAG issued to its reinsurers in May look vulnerable to upward revision, particularly given that the insurer describes itself as the largest fire and general insurer in New Zealand, with a 35 percent market share.

Even more worrying is the news that mammoth Japanese cooperative Zenkyoren is indicating that its initial 650bn yen ($8.5bn) loss notification will not cover the full extent of claims. Coming on the back of a similar announcement from smaller peer Saikyosairen, the claims picture is starting to look increasingly ominous.

Zenkyoren, which buys the biggest cat programme in the world, has around $4bn of currently untouched reinsurance cover. If the loss were to deteriorate drastically, it could be as bad for the industry as another significant cat.

Another noteworthy factor is the silence of a number of reinsurers on loss deterioration. This may just mean that the losses have remained steady. Alternatively, it could leave the door open for further deterioration announcements.

Click to enlarge Predictably, there has been a wide spread of outcomes among those that have made disclosures. QBE added $149mn to its initial $500mn reserves for the main Q1 cats - an increase of 29.8 percent. Hardy saw the same proportional deterioration, as the mid-point of its loss moved out from $38.3mn to $49.7mn.

Amlin's losses mushroomed from $391mn to $501mn - a rise of 28 percent - as it was caught out by the Suncorp loss notification.

Munich Re aside, which saw a $216mn deterioration, PartnerRe experienced the biggest absolute increase in loss estimates. Its net reserves climbed by $213mn to just over $1bn as it added $230mn to its reserves after Zenkyoren announced its first loss number in April - which was higher than some modelled loss figures.

PartnerRe's experience was unusual, however, with most of the sizeable movements in loss estimates being driven by New Zealand, where an industry-wide loss initially put at $8bn-$10bn has now increased to $12bn-$14bn.

Nevertheless, the loss reserves of a number of reinsurers proved entirely or largely resistant to increases in claims estimates from cedants. Novae was even able to report a 3.3 percent drop in its overall cat loss estimates to $67.7mn. Carriers that held their loss estimates steady included Swiss Re, Beazley, Montpelier Re, Lancashire, Hiscox, Validus and Ace.

With the US hurricane season hitting its peak, attention is likely to be distracted from the development of the year's early catastrophes. But these numbers suggest that reinsurers would be wise to keep at least one eye on this year's earthquakes while they continue to watch the Eastern seaboard.