For Insurers, 2011 Was One of the Worst

When the calendar flips on Dec. 31, it will mark the end to one of the worst years on record for the casualty and property insurance industry, and with the floods in Thailand capping off a devastating 12 months, Fitch says premiums will likely be on the rise.

Munich Re was quick to call 2011 the highest year on record for total economic losses after only half the year, followed by Swiss Re, which called 2011 the second most expensive year in history, with insured claims at $70 billion.

That is behind only 2005, when hurricanes Katrina, Wilma and Rita contributed to more than $120 billion of total losses.

Approximately 26,000 people lost their lives in catastrophes in the first six months of 2011, most of them in Japan. Earlier this year, Swiss Re’s chief economist, Thomas Hess, said that given the high death toll in just the first half, additional claims had the potential to “bring figures for the full year even closer” to the record claims of 2005.

And while the first half exhausted much of insurers' catastrophe budgets, the floods in Thailand, the country's worst in 50 years, have only exacerbated the problem.

“Losses from the Thai floods will directly affect their bottom line,” Fitch said, which will likely be the catalyst that pushes premiums higher in certain regions.

The across-the-board rate increase would be necessary to absorb heavy losses from natural disasters in the Asia-Pacific region, including the March earthquake and subsequent tsunami in Japan and the February Christchurch earthquake in New Zealand.

Global insurers were also hit by a recent earthquake in Turkey and floods in Australia.

So far, price increases have been directly correlated with the countries that have been affected by the natural disasters. In New Zealand, for example, property renewal prices doubled in the June and July renewal seasons, while Japanese rates climbed by 30% to 70%.

Likewise, in the Thai market itself, reinsurers may limit the level of flood coverage to less than 100% of the total loss, Fitch says.

Estimates for total insured losses related to the floods still vary widely, due primarily to a lack of available claims adjusters coupled with a higher number of claims and the difficulties in accessing some rural and severely damaged areas.

Swiss Re forecasts the total insured market loss will be between $8 billion and $11 billion, however it added that “significant uncertainty” remains. Aon Benfield has said insured losses may exceed $10 billion, while the Office of Insurance Commission in Thailand gave an initial loss estimate of around $7.2 billion, excluding business disruption claims.

On Thursday, Munich Re predicted that its own losses from the floods will be around 500 million euros before tax.

However, the news isn't all grim, as the ratings company expects losses for local non-life insurers to be manageable in Thailand because of the country's relatively low insurance penetration and anticipated help from the government.

Meanwhile, insurers in the U.S. such as Chubb (NYSE:CB), Allstate (NYSE:ALL) and Travelers (NYSE:TRV) have been reeling from floods and tornados in the Midwest, Hurricane Irene, a freak snow storm on Halloween and fires in California.

A report released Thursday by insurance broker Willis says 2011 catastrophe losses have had a "predictable impact on underwriting results," with many insurers posting significant losses in the first nine months of the year.

While Graham Knight, managing director of the Willis Power Practice in London, noted that there are increasing signs of a change in risk appetite, he said the general insurance market is still “reasonably well-capitalized,” meaning insurers should be able to keep funding claims.

Still, the outcome of the upcoming Jan. 1 renewal season is highly important, and Knight warned it will largely signify the direction of the market in 2012.