Bangkok--8 Dec--Fitch Ratings
The floods in Thailand could cause major global reinsurance firms to raise catastrophe premiums across the board to try to absorb the heavy losses from natural disasters in the Asia-Pacific region, Fitch Ratings says.
We believe that some reinsurance firms have already used up their catastrophe budgets for the year after big losses linked to the earthquake and tsunami in Japan and the earthquake in New Zealand. Losses from the Thai floods will therefore directly affect their bottom line. However, we expect these to be manageable, and we do not expect them to result in downgrades for global reinsurers.
Firms have to balance price increases with the need to remain competitive. However, the additional burden of the Thai floods may lead reinsurers to try and recover their losses through a broader increase in catastrophe reinsurance premiums during the important January renewal season. In the Thai market itself, reinsurers are also likely to limit the level of flood coverage to less than 100% of the total loss.
So far price increases have been mainly focused on those countries that have been affected by natural disasters. In our September review of the global reinsurance sector, we highlighted that US casualty prices remained flat in the June and July renewal seasons and Florida hurricane-exposed property premiums were between flat and up 5%. In New Zealand, however, property renewal prices doubled, and Japanese rates increased by 30%-70%.
Insurers are starting to get a handle on the bills the industry faces from the Thai floods, but estimates for the total insured loss vary widely. A lack of available claims adjusters, the high number of claims and difficulties in accessing some areas are continuing to make estimating losses difficult.
Munich Re said on Thursday that its own losses from the floods will be around EUR500m before tax. On Tuesday Swiss Re estimated that the total insured market loss will be USD8bn-11bn, but said "significant uncertainty" remains. Aon Benfield has said insured losses may exceed USD10bn and the Office of Insurance Commission in Thailand gave an initial insured loss estimate of around USD7.2bn, excluding business disruption claims.
We believe losses for local non-life insurers in Thailand are likely to be manageable, and that they will not trigger widespread solvency problems because of the relatively low insurance penetration in the country, and potential government support due to the severity of this catastrophe.