Switzerland’s insurance industry is bracing itself for multimillion-dollar claims as a result of hurricane damage in the United States.This content was published on October 18, 2004 - 15:43
But analysts say they expect firms to weather the storm and bounce back even stronger – unlike in the past.
Switzerland’s largest insurer, Zurich Financial Services (ZFS), announced on Monday that it expected claims from the storms to top $525 million (SFr648 million).
ZFS said the claims related to hurricanes Charley, Frances, Ivan and Jeanne, which swept across the US and the Caribbean in August and September this year, causing hundreds of deaths and leaving hundreds of thousands homeless.
Tim Dawson, an insurance analyst at the Geneva-based private bank, Pictet, said the figure was “a bit on the high side”, but unlikely to cause ZFS too many headaches.
“They can certainly afford losses of this sort of magnitude. It doesn’t mean any sort of financial strain for the company at all,” he said.
Meteorologists have described the 2004 hurricane season as among the most destructive in the past 100 years.
Other insurers and reinsurers have revealed similar big losses, prompting fears that the sector could be facing its biggest hurricane bill yet.
Earlier this month, Swiss Re, the world’s second-largest reinsurance company after Germany’s Munich Re, said it expected to receive claims totalling $750 million for the four hurricanes and a typhoon in Japan.
Its rival, Converium of Zurich, said its hurricane losses would be in the region of $67-85 million.
In total, ZFS said the storms would probably cost the industry more than $20 billion.
This figure would break the record set by Hurricane Andrew in 1992, when the insurance industry had to pay out $15.5 billion in today’s terms.
The cost of repairing the damage caused by Andrew triggered a financial crisis in the insurance industry, with many of the syndicates making up the Lloyd’s of London insurance market coming close to collapse.
Twelve insurance companies in the US went bankrupt.
But Pictet’s Tim Dawson says this year’s hurricanes are unlikely to cause a similar slide.
“Hurricane Andrew came at a different time. It was the culmination of a string of large losses: the big European wind-storm losses in 1987, the Piper Alpha [oil rig] loss which hit the Lloyd’s market very hard, then Hurricane Andrew itself,” Dawson told swissinfo.
“This time around, the industry had two or three years of good pricing and good profit. That’s meant that it’s in much better shape to deal with these losses,” he added.
In fact, Dawson expects the bigger reinsurers to weather the storm, saying that although their bottom line is likely to be hit this year, the claims won’t make a big dent in their balance sheets.
“Reinsurance companies are strange beasts. Up to a point, bad news is good news for these companies,” he said.
Dawson explained that one effect of big claims was to remove some of the capital and weaker players from the market; the other was to stimulate demand for reinsurance.
“The thing about a large loss is that it reminds people about the need to reinsure... so for reinsurers overall it’s good for demand, it’s good for supply and the price you have to pay are the claims you pay out this year,” he said.
“But, on balance, the benefits in future years should outweigh that. So for strong, well-capitalised reinsurers, these are quite positive developments,” he added.
swissinfo, Isobel Leybold-Johnson
Zurich Financial Services estimates $525 million in claims.
Swiss Re put its estimate at $750 million.
Converium has posted an estimate of $67-85 million.
Overall, hurricane claims could cost the industry over $20 billion.
In 1992, Hurricane Andrew cost $15.5 billion.
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