Quantitative review little threat to ports

The first half of 2010 has been very costly for the insurance industry at large, with the Chilean earthquake and European floods producing considerable claims; losses relating to the Deepwater Horizon rig disaster and pollution in the Gulf of Mexico could be enormous, but this may only be clarified after a good deal of litigation.

Stephen Catlin, head of Catlin insurance group, has said that underwriters will need to achieve a 10 point positive swing in their combined ratios (underwriting profit compared with claims and expenses) to maintain their return on equity levels of two years ago. He also warned that the Chilean catastrophe in February, could turn out to be even costlier than the $8bn insured loss forecast.

Meanwhile, we have the build-up to the European Commission’s Solvency II regime, due to come into force in 2012. Insurers have been asked to participate in a fifth Quantitative Impact Study, known as QIS5, to help develop the Solvency II legislation and regulatory parameters for company balance sheets. This is much more than just a technical accounting or solvency measure: it is likely to change many of the ways in which insurers operate, including their assessment of risk.

Alistair Groom, chief executive of Standard P&I Club, commented recently in his financial report that while the requirements themselves are not extraordinary, the amount of work involved in compliance, and proof of compliance is huge.

Results of the QIS5 study, due to be published in April 2011, will affect more than 5,000 insurance companies, some of which may have to raise additional capital at a time when stock markets and many private investors are nervous about committing themselves.

Does this mean that port and terminal operators face increases in their insurance costs? In the near term, that is unlikely, for those with low claims records. One shining beacon for buyers is that across the market, reinsurance rates have remained soft, which eases the pressure on primary insurers.

It would need a catastrophe on the scale of hurricanes Katrina or Ike to make any real change, contend some analysts. Katrina was the biggest insured loss on record, producing claims totalling $41bn. Although a severe Atlantic hurricane season is in prospect, it will probably be well into August or September before the worst strikes.