Record Hurricane Season 2005

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Record Hurricane Season - 2005
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Record Hurricane Season - 2005
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Natural Catastrophes

• Challenges and Opportunities

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Worldwide Nat Cat Losses
Annual insured losses from 1970 to 2005, in USD
bn indexed to 2005

• Strong upward trend due to
• Higher insurance penetration
• Growing property values
• Coastal value concentration

Source Swiss Re sigma
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Increasing Values in Exposed Areas
Ocean Drive, FL, 1926.
Ocean Drive, FL, 2000.
Direct Premium Written Growth Rates Period 1998-2
001 2002-2005 All US 26 24 Florida
32 47
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Climate Variability
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Getting the Risk Model Right
Some Cat Models are based on the last 100 years
of history.
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Distribution of Major Reinsurers SP Rating by
NPW
Sources Standard Poors, Swiss Re Economic
Research Consulting
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Impact of 2004/2005 Hurricanes
Receivership The state takes over the insurer's
operations and uses the company's resources to
pay outstanding claims. Liquidation The
department of financial services continues as
receiver, but the Florida Insurance Guaranty
Association is tapped to help pay outstanding
claims.
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Impact of 2005 Hurricanes on Reinsurers?
Importance of Size and Diversification
Market capitalisation (USD) gt 15bn 5 15bn lt
5bn
Capital of smaller and less diversified
reinsurance companies was significantly impacted
by Katrina, Rita and Wilma.
USD m
5 000
75
4 000
60
3 000
45
Swiss Re
2 000
30
1 000
15
0
0

• Notes Shareholders equity as of 2004 market
  cap as of 30.01. 2006
• Source Company data Swiss Re claims estimate
  net of equalisation reserve release

Current net claims estimate (bef. tax)
Net claim in of shareholders' equity
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Large Loss Potentials
110
Hurricane USCarib.

• Peak risks
• Earthquake or storm
• In industrialisedcountries
• With high insurancedensity

45
18
7
8
Daria 1990
Northridge 1994
FHCF
Mireille 1991
Katrina 2005
Insurance loss potentials in USD billions
Nat cat events (indexed to 2005)
Loss potentials from events with a return period
of 200 years (100 years for Hurricane North
Atlantic)
FHCF Florida Hurricane Catastrophe Fund
state-run JER Japan Earthquake
Reinsurance Scheme schemes
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US Policy Holder Surplus Still Adequate ?
US Cat Capacity provided by the PC Insurance and
Reinsurance Industry is about 25 of the US PHS.
In USD bn
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ILS Market Capacity
Total US Cat Bonds outstanding, by year
Issued Issued in respective year Outstanding
Outstanding from previous years issuances
As of June 6, 2006 Source Swiss Re Capital
Markets
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Outstanding US Bond Market Debt

• Outstanding Level of Public Private
• Bond Market Debt
• 1985 2005 Q4 ( Billions)

US Cat Capacity provided by the Capital Markets
is about 0.0150 of the total amount of
outstanding US Bond Market Debt ---gt Growth
potential !
Note The total outstanding notional amount for
credit derivatives is an additional 17 trillion
for a total between the two categories of
approximately 40 billion in US dollar debt and
credit derivatives with substantial additional
amounts of similar securities and derivatives in
other currencies.
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Conclusion

• The severity of nat cat losses are increasing
  world-wide. Most of this is increase is due to a
  significant growth of insured values in exposed
  regions.
• The frequency of nat cat events is subject to
  climate variability. It is important that risk
  models take this into account.
• The security of reinsurance companies is lower
  than 10 years ago. Size and degree of
  diversification matter.
• Capital market solutions can be structured so
  that the counterparty credit risk is extremely
  small. There is vast market potential for ILS
  given the size of the capital market.

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• We need to engage now in capital market solutions
  to ensure sufficient availability of capacity
  with adequate security to protect the assets of
  our industry.