Much of our market commentary in 2011 focused on the impact of natural catastrophe events, globally and closer to home in Asia, Australia and New Zealand. As 2011 drew to a close, the situation for most insurers worsened as existing loss estimates increased (Thailand floods now estimated above $11bn) and new events occurred (Christchurch tremor 23 December and the Melbourne hail storm 25 December, the latter estimated at $550m).

Catastrophe insurance losses globally reached $105bn in 2011 according to Munich Re, more than double last year’s figure and surpassing the previous record of $101bn in 2005.

The economic woes of the Euro zone could potentially hit the balance sheet of insurers with rating agencies already placing negative watches over a number of carriers with sovereign debt exposures.

Locally, certain insurance companies have announced painful profit warnings. If not corrected, the results of Australian insurers have the potential to change investors’ views of insurance as a defensive stock. This will be on the minds of insurance company leaders and will strengthen their resolve to price insurance products correctly and regain control of the volatility by removing some of the catastrophe risk from their portfolios.

In summary:

• The availability of earthquake capacity in the local market has become unpredictable as insurers begin to reach the limits of the capacity they are able to provide for Wellington.
• Zurich’s move away from offering natural disaster cover has required brokers to find an additional NZ$5bn of capacity.
• There has been a trend for insurers to focus predominantly on obtaining increased premiums and applying increased deductibles for natural disaster perils.

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