2010 was a testing year for insurers resulting from both substantial catastrophe claims and a high incidence of large losses. This has continued into the first half of 2011 with a further four severe catastrophes:
- Flooding in Queensland and Victoria, Australia, in January;
- Earthquake in Christchurch, New Zealand, in February;
- Earthquake and the resulting tsunami in Japan, in March; and Tornadoes in the United States, in April and May.
2011 is now the highest ever loss year on record with approximately US$265bn1 of economic losses, resulting in US$60bn insured losses in the first half of the year. 2005 was the previous highest, with economic losses of US$220bn for the whole year.
Key findings:
Underwriting - 2011 has been exceptionally challenging. The focus for insurers coming out of a difficult 2010 was to increase underwriting discipline. However, there was no clear trend in the top line among the insurers, with five reporting increases and four decreases on the comparable period. The increases are largely as a result of new underwriting teams and offices, rather than due to organic growth.
Claims - all insurers reported increased claims incurred with the increase in reported catastrophe claims. The reserves reported for the 2011 catastrophes are shown in the graphs to the right. The reserves held have generally remained stable, with the exception of New Zealand earthquake losses, which deteriorated due to the considerable increase in advices received from cedants. Gross loss estimates are still subject to uncertainty.
Rates - all insurers reported that the first half of the year was characterised by a soft rating environment with average rate increases of between 0% and 1%. Catastrophe rates have started to increase following the catastrophe events of the first quarter with average increases of 4% to 5%.
Tax - remained an area of keen focus in the London insurance market. The average tax rate of the benchmarked insurers was down to 11.5% (2010 full year 13%).
Corporate actions - despite the adverse claims environment coupled with lower investment returns in 2011, all the benchmarked insurers, with the exception of Brit and Omega, announced dividends at half year in excess of those announced at half year in 2010.
Expenses - the average expense ratio across the insurers for the period was 36%, which is in line with the 2010 full year of 36% and represents a 2% increase against the 2010 half year.
1 (Source: Munich Re press release, 12 July 2011)
