Insurers face mounting catastrophe claims | Business| Economy and finance news from a German perspective | DW | 13.08.2010
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Insurers face mounting catastrophe claims

2010 is proving a rather expensive year for insurers, as claims mount amid a growing number of natural disasters around the world. The industry is bracing itself for more catastrophes and a fresh slew of damage claims.

A man walks past a destroyed building in Concepcion, Chile after an earthquake in February 2010

Insurers began counting the costs of disasters early in the year

A series of catastrophes has hit the globe recently: devastating floods in Pakistan, wildfires in Russia, China's mudslides and the deluge of water that has submerged parts of Europe, including Germany.

While the latest wave of disasters may have induced a spike in insurance claims, the world's top insurers began counting the costs of the destruction several months ago.

That's hardly surprising, given many observers have pointed out hardly a month seems to have passed in 2010 without some part of the globe being struck by a random catastrophe - starting with the fierce winter storms that caused extensive damage across Europe.

Releasing its half-yearly results earlier this month, the world's biggest reinsurer, Munich Re, said there have been "a striking accumulation of costly natural catastrophes" in the past few months.

The list of calamities includes major earthquakes in Haiti, Chile, Turkey, Costa Rica and China, as well April's volcanic eruption in Iceland, which caused ash to drift across Europe and brought the region's air travel industry to a standstill.

Also in April, an offshore oil rig leased by London-based energy giant BP exploded in the Gulf of Mexico, leading to the biggest oil spill and environmental disaster in the United States.

Pakistani villagers collect their belongings amid heavy flooding

The devastating floods in Pakistan are among the recent wave of disasters

Claims hit profit margins

Munich Re has estimated industry damage claims from natural catastrophes alone totalled $22 billion (17 billion euros) for the first half of its fiscal year - more than double the first-half averages for the past decade.

Despite this, Munich Re stuck to its full-year goal. "We aim to earn a profit of over 2 billion euros in 2010. That remains ambitious, but it is achievable," Chief Executive Nikolaus von Bomhard said.

This month, Europe's biggest insurer, Allianz, which is also based in the southern German city of Munich, reported a 46 percent decline in second-quarter net profit after facing claims for natural disasters totalling 255 million euros ($327.87 million).

The quarter rounded out a first half that was "marked by exceptionally high natural catastrophe losses," chief executive Michael Diekmann said in a statement. Natural disasters had cost the insurance giant €500 million in the first three months of 2010.

Still, Allianz's operating profit of 3.9 billion euros prompted Diekmann to strike a note of optimism. "We are confident that we can achieve our outlook for operating profit for the entire year of around 7.2 billion euros, with a fluctuation range of plus or minus 500 million euros," he said in the statement.

Hannover Re, too, said first-half losses from catastrophes came in at a higher-than-expected 407.6 million euros. That caused the group's first-half profits to slump by 28 percent to 310.6 million euros.

An image showing the site of the Deepwater Horizon oil spill

Swiss Re says it's expecting massive oil spill claims

Oil spill claims

The impact of catastrophes has been felt by insurers beyond Europe as well. Chartis, the property-casualty division of US insurance giant AIG, ran up about $287 million (223 million euros) in catastrophe costs, including a 23-million-dollar loss on the Deepwater Horizon oil disaster.

Swiss Re, the world's second largest reinsurer, said it's expecting claims from the Gulf of Mexico oil spill to total 200 million dollars before taxes. Analysts have pointed out that it's still early for claims for the oil spill, with the inquiries, legal action and the cleanup operation still under way.

Zurich-based Swiss Re has also lifted its estimate for losses from the earthquake in Chile to $630 million before tax from a previous estimate of $500 million.

Despite the cost of the disasters, Swiss Re posted a second-quarter net profit of 853.4 million Swiss francs (€630.54 million; $810.75 million).

Spotting the silver lining

At the same time, however, insurers like Swiss Re anticipate some positive fallout from extreme weather events like the ongoing drought in the Black Earth region of central Russia.

The company expects the drought to spur interest in the crop insurance market, as farmers re-evaluate the risk of crop failure.

Flood waters and the debris from the destruction in Bogatynia, Poland

Munich Re says disaster claims for the first half of 2010 were over double the average of the past decade

"Nobody knows if the weather pattern that we see at the moment can repeat itself next year or just in 20 years, and I think this helps to raise awareness for financial risk management measures," Swiss Re Director Reto J. Schneider told Reuters in an interview.

The company estimates that 25 percent of Russian crops are insured - well below the level of 80 percent seen in the heavily-subsidized US market.

Many Russian farmers continue to rely on government bailouts when crops fail, although the crop insurance market has grown considerably since 2003, when the government began encouraging the development the sector.

Author: Ranjitha Balasubramanyam (dpa, AFP, Reuters)
Editor: Gerhard Schneibel

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