Stormy waters ahead for port insurance renewals
Losses in the insurance market will upset port renewals
Even Warren Buffett has found the going tough in the insurance market this year. The sage investor has admitted that his underwriting business is likely to make a loss for the first time in a decade.
The Japanese tsunami and earthquake, the New Zealand earthquakes, and Australian floods have already resulted in an underwriting deficit of $821m at Mr Buffett’s Berkshire Hathaway group in the first quarter, with an estimated $1.67bn of pre-tax losses from catastrophes.
Catastrophe is the word. In particular, estimates of exposures to the Japanese disaster continue to rise sharply. Almost all the big reinsurers based in Bermuda suffered reverses in the first quarter, and this was before a deadly series of US tornadoes and storms struck seven US states in late April, which will produce another $5bn of claims.
Industry-wide, first quarter insured losses are estimated to exceed $50bn.
This burden, together with changes in the methodology of gauging hurricane risk, has made the reinsurers determined to increase their capital to be able to face future claims and regulatory demands.
The reinsurers are seizing the chance, for which they have been waiting for more than four years, to raise their rating demands.
This hardening market has already fed through to April renewals, adding to the costs of direct insurers, and is expected to have a further marked effect at the July renewals.
The ports and terminals sector cannot hope for immunity from these colder blasts, but with the exception of negotiations in relation to facilities in catastrophe-prone areas, it has some persuasive arguments in defence of maintaining premiums at levels close to last-done.
The claims record in the ports sector has been mild for the past couple of years, although the persistence of bodily injury claims continues to weigh on finances.
In the niche ports area, the insurers have built long-term relationships with their reinsurers, which could help fend off any untoward price hikes. At the same time, there remains a plentiful supply of capacity in the ports insurance market, and although most clients seem happy with their current insurance providers, they always have the option of switching if they feel they could get better value, or service, with the competition.
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