Spring 2006
NEWSLETTER to clients of Knox Insurance Brokers Ltd.
From Randy Bushey, A.I.I.C.,
General Manager
Spring 2006 |
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TOPIC: Reinsurrance Issues
The Global reinsurance market plays a significant, but somewhat hidden role in the premiums that you pay as an insurance consumer. Reinsurance is the coverage that insurance companies buy, protecting them against catastrophic loss. As you would expect, the costs to reinsure are passed on by insurers to their policyholders, together with other operational and claims expenses.
Although there are just under 250 reinsurance entities globally, the top 10 underwrite approximately 80% of the world-wide market.
The biggest enemy of the insurance and reinsurance industry in 2005 was the increasingly unpredictable and unforgiving weather. Global weather-related losses in 2005 accounted for US$225 billion in damage; 36% of this total was covered by insurance.
The challenge for underwriters is to anticipate and predict with relative accuracy, the frequency and severity of future “weather events”. In North America, seven of the most expensive storms in history have occurred since October 2004. When insurers and reinsurers paid US$27 billion for North American storms in 2004, it was the worst year on record, and thought by many to never be repeated; but the 2005 hurricane season will exceed US$57 billion, and some weather-trend projections predict significant activity in the Caribbean for 2006.
The impact to our clients is this: every policy purchased will have some portion of the premium flow through to the reinsurance market to replenish depleted capital. We are not anticipating significant rate increases. Several months ago we believed that property rates may fall in 2006 by as much as 6-10%; the five significant Caribbean/US hurricanes of 2005 will prevent that from occurring. We will be monitoring the ability of our insurers to withstand catastrophic losses, ensuring their ability to fulfil their contractual promise to you, our client
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