2012 - a year of living not so dangerously

The head of the world's biggest reinsurer says fewer natural disasters bodes well for the company after massive payouts last year

PUBLISHED : Monday, 15 October, 2012, 12:00am
UPDATED : Monday, 15 October, 2012, 3:17am

Looking back, 2011 could have been called the year of the natural disaster.

With catastrophes in Japan, New Zealand and Thailand, just to name a few, last year inflicted a record toll on those countries, their people and business communities.

Things are looking up, though - fewer disasters in the first nine months of this year signals a fall in insured losses for 2012, according to the head of the world's biggest reinsurance group.

Nevertheless, says Nikolaus von Bomhard, chairman and chief executive of Munich Re, the final outcome will depend on getting through the rest of the year largely unscathed.

Munich Re, the world's largest reinsurance group by premium income, is based in the german city of Munich but has global operations with around 5,000 insurance company clients in 160 countries. Warren Buffet's Berkshire Hathaway owns 10.2 per cent of the group and is its single-largest shareholder.

Primary insurance companies buy reinsurance to transfer often large risks to a third party, or a reinsurer, in order to manage their overall loss exposure.

If no claims arise, the reinsurers pocket part of the premiums; but when there are big claims, the reinsurers will often bear the bulk of the losses, especially when it comes to natural disasters.

"So far it has been a relatively good year as there were very few natural catastrophes around the world in the first nine months. This is favourable for reinsurers like us," von Bomhard told the South China Morning Post in Hong Kong.

The provisional outcome follows on the worst year on record for natural catastrophes in terms of economic and insured losses.

The massive earthquakes and weather-related catastrophes inflicted around US$380 billion in economic losses overall, with over 70 per cent in the Asia-Pacific region.

The total insurance payout was more than US$100 billion, about half of which was in the Asia-Pacific, where about 85 per cent of the fatalities occurred.

Munich Re alone paid out about US$4 billion in claims in the region.

But claims fell in the first half of this year and Munich Re's losses from natural catastrophes in the period were well below the six-month average of recent years, von Bomhard said.

"However, it is worth noting that weather-related catastrophes have quadrupled over the past 30 years in the Asia-Pacific and tripled worldwide, and we can't expect this year to be the norm," he said.

In its latest quarterly report for April to June, Munich Re said it was on track to slightly surpass the originally envisaged profit for the year of around €2.5billion (HK$25.10 billion).

But this does not necessarily translate into lower premiums for buyers of insurance.

Following the record payouts for natural catastrophes last year, most insurers will be charging higher prices, especially in areas prone to natural disasters like floods and earthquakes.

Von Bomhard added that many risks in the Asia-Pacific region were underinsured and there was an urgent need for higher natural catastrophe coverage.