Superstorm Sandy is looming over the insurance industry as
companies look to lock up their backup protection against large
losses for the coming year.
The massive storm, which struck the most populous region of the
U.S. in late October, helped moderate declines in U.S. property
reinsurance rates, according to a new report from insurance broker
Willis Group Holdings PLC (WSH). The price of such coverage was
flat to down 5% for insurers that didn't have reinsurance losses in
2012, according to the report.
"In the absence of Superstorm Sandy, reinsurers would have found
it difficult to resist buyer pressure for further concessions,"
wrote executives from Willis Re, the company's reinsurance arm.
"Sandy's impact has helped to stabilize market pricing on an
overall basis."
Rates were up 10% for insurers that did have reinsurance losses
in the past year, the report said.
Rod Fox, chief executive of reinsurance broker TigerRisk
Partners, said rates appeared to be headed down 5% to 10% before
Sandy struck.
"Sandy slowed that decline," he said. While reinsurers have
plenty of capacity to take on risk, "there's always a psychological
impact on the market after a large catastrophe, where people say
what if it had been even worse."
The start of January is one of the most important dates for
reinsurers, when about half of all their business is done.
Reinsurance contracts that renew in January include national
accounts that cover large losses across the U.S., while June 1,
another important renewal date, is focused on the Florida
market.
The Willis report is about in line with recent predictions from
analysts that track the industry. Reinsurers largely came through
2012 in excellent shape, as insured losses from catastrophes in
2012 were about half the $120 billion pricetag from 2011. Claims
from Sandy, currently estimated at $20 billion or more, were
dwarfed by the combined cost in 2011 of the Japan earthquake, U.S.
tornadoes and flooding in Thailand.
Still, Mr. Fox said the storm gave insurers and reinsurers
pause, in part because it caused significant damage despite being
downgraded from a hurricane to a post-tropical storm before making
landfall.
"You had a low wind-speed event that covered a massive area and
had a huge flood component," said Mr. Fox. "A lot of people hadn't
contemplated that kind of event. While not a complete shock, it was
a unique set of circumstances."
Willis said one corner of the market was feeling a
"disproportionate impact" from Sandy. The so-called marine market
had its largest ever loss from Sandy, and also suffered from the
sinking of the Costa Concordia cruise ship and the
higher-than-expected cost of a container ship that ran aground off
the New Zealand coast.
The losses caused "very late renewals," and many buyers of
marine coverage are choosing to keep more of the risk on their own
books to help offset rate increases of 15% or more, Willis
said.
"Marine" insurance can involve coverage of ocean-going vessels,
but the term is also used to describe policies on other types of
transportation and the protection of goods while they are in
transit.
Elsewhere in the world, Sandy had little impact on rates. For
insurers that didn't draw on their reinsurance last year, property
prices were flat to down 5% in Europe, flat to down 15% in China
and flat to up 6% in Latin America, according to the Willis
report.
Write to Erik Holm at erik.holm@dowjones.com
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