Insurance comfort for the bottom line
At first glance, the prospects of keeping their insurance spend at current levels might seem slim for executives in the ports and terminals industry; the recent series of high-profile natural catastrophes could encourage underwriters to seek dearer premiums at renewals.
The $30bn insurance cost of Superstorm Sandy, which among other consequences caused significant disruption to operations at US ports; the Oklahoma and Texas tornadoes in May; the multi-billion euro cost of floods in central Europe in June; and a potential $3.6bn bill for floods in the Canadian province of Alberta, are among catastrophe impacts weighing heavily on the market.
On top of this, scientific reports continue to warn of more damaging Atlantic storm seasons, and that climate change will provoke natural disasters worldwide of increased severity.
Certainly, marine insurers in London have recently won slight rate increases in some lines. More broadly, however, clients remain in the driving seat, as they have done for several years. The ports and terminals sector in particular manages to remain immune from the huge waves that often rock the wider insurance market.
A measure of explanation for this phenomenon of counter-intuitive stability at client level is given in a new report from one of the top reinsurance brokers, Willis Re. It boils down to a surprising supply of new capital into reinsurance markets.
Such capacity, including new managed funds, has moved into US property catastrophe cover: the very sector that was so hard hit by the US east coast superstorm. Leading to a highly competitive scene, this has forced reinsurers on to the defensive, with measures such as price reductions and multi-year agreements, to woo primary insurers. The primary buyers have been given further flexibility in finding back-up both from traditional reinsurers who have set up so-called side-car structures providing third-party access to risk, and through the availability of catastrophe bonds. According to Willis Re chairman Peter Hearn, creation of these bonds is on track to surpass the previous record high issuance in 2007 of $7.2bn.
The broking house claims that losses from US tornadoes and European floods will have only a modest impact on the global reinsurance market. It is thus hardly surprising that US property catastrophe reinsurance rates are softening, and there is a similar development in China, the Caribbean and elsewhere. “As it stands, it is not easy to see any end to the continuing softening of the global reinsurance market,” says Willis Re. It is a comforting prospect for those who sign the insurance cheques each year.
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