February 18, 2005

Report Shows Global Reinsurance Status

A task force of the International Association of Insurance Supervisors released in December its first "Global Reinsurance Market Report 2003" (IAIS Dec. 2004). It discusses aggregated data from 43 "significant reinsurance entities" from 7 major jurisdictions. It is based on fiscal year 2003 data, and appraises industry ability to absorb the results of 2004, including controversial impacts on the Florida windstorm residual market system. It examines the degree of market concentration and diversification of risk in the global reinsurance marketplace, and makes recommendations regarding global standardization of accounting and regulation.
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In addition to 2003 data, the report includes information about events in 2004, including the impact of the series of hurricanes that struck Florida in the summer and fall of 2004. It cites current estimates of total losses from Hurricanes Charley, Frances, Ivan and Jeanne to range from US$15 bn to US$25 bn. According to the report, much of the loss in Florida will be absorbed by State Farm and Allstate (together writing 35% of the homeowners risk in Florida), and by the residual market mechanisms created after Hurricane Andrew, the Florida Hurricane Catastrophe Fund (FHCF) and Citizens Property Insurance Corporation (Citizens).

The report's tables of estimated hurricane losses for 2004 indicate that Citizen's loss is approximately 99% of its surplus, and that assessments of policyholders will be necessary. Except for one regional insurer concentrated in southeast Florida, most of those insurers impacted by the 2004 hurricanes had surplus hits in the single digit percentages. Despite their significant share of the Florida market and substantial retention, the losses for Allstate (US$1.1 bn) and State Farm (US$1.3 bn) are below 5% of surplus .

The report includes discussion of aggregate statistics of the size of the reinsurance market, the structure and profile of risk assumed, use and impact of derivatives and credit risk transfer activity, counterparty risks, capital adequacy and other areas of potential interest.

The need to tap the FHCF due to the 2004 hurricanes has already raised substantial controversy in Florida over the impact on FHCF, as has the impact upon Citizens.


Posted by dougsimpson at February 18, 2005 01:44 PM | TrackBack
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