Business Features

Insurers face mounting catastrophe claims (News Feature)

By Andrew McCathie Aug 11, 2010, 16:19 GMT

Berlin - It is shaping up to be a costly year for the world's leading insurers with claims mounting for major natural disasters.

Indeed, even before the latest wave of catastrophes - Pakistan's devastating floods, China's deadly mudslides, the disastrous fires in Russia as well the deluge of water that has engulfed parts of Central Europe and Germany - insurance companies have been counting the cost of a spate of destruction.

'In the past few months, there has been a striking accumulation of costly natural catastrophes,' the world's biggest reinsurer Munich Re said releasing its half-yearly results early this month.

But then hardly a month seems to have past so far this year without some part of the world being hit by a random catastrophe starting with the violent winter storms that caused widespread damage across Europe.

This was followed by major earthquakes in Haiti, Chile, Turkey, Costa Rica and China as well the shutdown of the European air travel industry after volcanic ash drifted across the region from Iceland earlier this year.

The British energy giant BP has battled since the Deepwater Horizon rig exploded in the Gulf of Mexico in April to close off a massive oil leak that became the United States' biggest environmental disaster.

In the meantime, parts of Australia were lashed by hefty hailstorms, while thousands of people were evacuated after volcanoes erupted in Ecuador and Guatemala in May.

Europe's biggest insurer Munich-based Allianz SE reported this month a 46-per-cent slump in second-quarter net profit after facing claims for natural disasters totalling 255 million euros.

Natural disasters cost the insurance giant 500 million euros in the first three months of the year.

The business results have been echoed across the insurance industry, with Hannover Re saying first-half losses from catastrophes coming in at a higher-than-expected 407.6 million euros (526 million dollars). The group's first-half profits dropped by 28 per cent to 310.6 million euros.

The Chartis property-casualty business of US insurance giant AIG ran up about 287 million dollars in catastrophe costs, including a 23-million-dollar loss on the Deepwater Horizon oil disaster, AIG said unveiling its second-quarter results.

Swiss Re, the world's second largest reinsurer, is expecting a claims from the Gulf of Mexico oil disaster to total 200 million dollars pretax.

But with the inquiries into the Deepwater Horizon explosion and the resulting legal action and cleanup the insurance claims for the disaster are likely to be still in their early days.

Zurich-based Swiss Re has also lifted its estimate for losses from the earthquake in Chile to 630 million dollars before tax from a previous estimate of 500 million dollars.

But despite the cost of the disasters, the group posted a 853.4 million Swiss francs (812-million-dollar) second-quarter net profit after a 342-million-dollar net loss during the same period last year.

'The higher occurrence of severe weather and catastrophe-driven events compared with prior year combined with lower volumes particularly impacting the expense ratio resulted in a deterioration of the combined ratio,' Switzerland's biggest insurer Zurich Financial AG said last week.

Zurich Financial said its combined ratio worsened to 96.9 per cent in the first half of the year from 96.7 per cent. A ratio of over 100 indicates the insurer is incurring an underwriting loss.

The company posted a 51-per-cent fall in second-quarter net profit to 707 million dollars.

Meanwhile, the insurance industry is gearing up for a possibly hefty hurricane season, particularly across southern areas in America.

'Munich Re's geo-scientists anticipate that the frequency of cyclones will tend to be higher in 2010, since there will be no El Nino effect this year and the Atlantic's surface water temperatures have reached record levels,' Munich Re warned in its half yearly report.

At the same time, the catastrophes such as the floods in Pakistan which have so far left 1,600 dead and the mudslides in north-west China point to the risks for insurers of further disaster claims in the run-up to the year.

This is quite apart from the broader economic costs of the disasters with the bushfires in Russia already threatening to drive up the cost of grain and possibly stoke inflationary pressures.