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DJ - FOCUS: Insurers Brace For Disaster Impact On 2010 Earnings
(This story was originally published Wednesday.)
By Goran Mijuk
Of DOW JONES NEWSWIRES
The cost of claims from the Chilean earthquake and European storm Xynthia will have a heavy impact on insurance company earnings this year, ending a five-year phase of relative calm that kept losses in check.
Swiss Reinsurance Co (RUNK.VX) and Munich Re (MUV2.XE), the world's largest reinsurers by premiumsthat provide cover to insurance companies for rare but expensive natural and man-made disasters, said Wednesday that the two events will cost them roughly $600 million and EUR600 million respectively, according to preliminary estimates. Both companies said the charge would hit first-quarter earnings.
Europe's largest insurer by premiums, Allianz SE (ALV.XE), said storm Xynthia alone could cost it up to EUR300 million, while the U.K.'s RSA Insurance Group PLC (RSA.LN) expects claims of about GBP30 million from the Chile earthquake. U.S. reinsurer PartnerRe Ltd. (PRE) forecasts losses of up to $320 million from both events.
Other insurers are likely to be affected too. Risk modeling agencies Eqecat and Air Worldwide, which calculate claims with computer models, expect the Chile earthquake that killed around 800 people to cost the insurance sector up to $8 billion. Munich Re and Swiss Re estimate industrywide claims will be $4 billion to $7 billion.
Winter storm Xynthia, which ravaged Europe in February and killed more than 60 people, could add another $4 billion to the sector's bill, according to forecasts from PartnerRe. Rating agency Moody's warned that insurers such as Groupama and Covea that are active in France, where storm damage was particularly heavy, could see earnings slide.
Analysts say claims are likely to hit the first quarter earnings of most players and could prompt some to redouble cost-cutting efforts. "The above-average catastrophe quarter consequently points to rather weak technical first quarter results," said Bank Sarasin analyst Daniel Bischof.
In Swiss Re's case, the estimated losses could shave off about 15% of the company's estimated full-year 2010 profit, said Bank Vontobel analyst Stefan Schuermann.
Costs for natural and man-made disasters have risen over the last two decades as industrialized and emerging countries became wealthier. This allowed more people to buy insurance cover for buildings and cars, triggering a higher insurance bill in the event of a disaster.
In contrast, poorer regions often suffer high death tolls from catastrophes while the costs to insurers are negligible. The earthquake that hit Haiti in January and killed more than 200,000 people cost insurers less than $100 million. Likewise, the tsunami that hit Southeast Asia in 2004 and claimed around 300,000 lives only triggered marginal insurance costs.
Hurricane Katrina, that devastated New Orleans in 2005, was the most costly natural catastrophe so far. Private and state insurers paid out a record $117.9 billion in that year, which saw an unusually high number of hurricanes in the Gulf of Mexico region.
Since then, global insurance claims have eased but remained at elevated levels, reaching around $52 billion in 2008 and $24 billion in 2009, according to calculations by Swiss Re.
Traditionally the sector recovers some costs in the aftermath of heavy claims periods by increasing premiums.
Following Hurricane Katrina, premiums for boat and house insurance policies more than doubled. They dropped again two years later as the number of heavy hurricanes receded and losses from catastrophes dropped. Likewise, premiums rose after the Sept. 11, 2001, terror attacks, only to fall again several years later.
Analysts say this year's claims, which have already reached an estimated $14 billion, could help insurers and reinsurers increase premiums in some regions but that a general reversal of the recent sluggish premium trend would require bigger and costlier disasters than the one in Chile.
"At an industry level it appears that the Chilean event is by far the more important of the two," said Helvea analyst Tim Dawson. "Although it will almost certainly lead to changing in reinsurance prices for business in that region, it is not an industry-changing event on its own," he said.
Munich Re Chief Executive Officer Nikolaus von Bomhard Wednesday said he expects the impact of the Chile earthquake to have only a limited impact on reinsurance rates.
Von Bomhard told CNBC television that he expects to see a "certain hardening" of rates for natural-disaster policies "but not tremendous."
Analysts, meanwhile, said that should this year's U.S. hurricane season be more active than during the past two years, claims could spiral once again and trigger higher premiums. The U.S. hurricane season, which often hits densely populated areas in Florida, starts in June and lasts until the end of December.
-By Goran Mijuk, Dow Jones Newswires, +41 43 443 80 47; goran.mijuk@dowjones.com
(Ulrike Dauer and Vladimir Guevarra contributed to this item.)
(END) Dow Jones Newswires
March 11, 2010 00:30 ET (05:30 GMT)