Hiscox: reinsurance rates must rise

Chris Wheal

Mar 16th 2010

Text SizeAAA

Lloyd's insurer Hiscox said this morning that based on an insured market loss of $8bn for the Chilean earthquake, and $3bn for windstorm Xynthia, Hiscox estimates a combined net loss of approximately £100m.

It said the estimate is within budgeted losses for such events and Hiscox has reinsurance cover remaining for other catastrophes. Crucially, Hiscox believes these losses will result in the firming of some reinsurance rates. It had better do.

Hiscox underwrites no specific Chilean reinsurance programmes so has no material direct insurance exposure to the Chile quake, the company said.

Shared risks

But because insurers and reinsurers divvy up risks between themselves, it has exposure through its underwriting of global and regional reinsurance and retrocessional programmes. The retro market is the insurance that reinsurers take out.

The breadth of industry estimates reflect market uncertainties, Hiscox said, and this could lead to a later revision of its estimate.

Endurance add $65m

Hiscox's announcement this morning follows Bermuda reinsurer Endurance yesterday saying its initial loss estimate from the Chile earthquake and European windstorm Xynthia, will be $65m, pre-tax and net of reinsurance and reinstatement premium.

"Endurance's loss estimate is preliminary and is largely derived from a combination of its proprietary catastrophe modeling, standard industry models, an in-depth review of in-force contracts and initial indications from clients and brokers," it said.

"To date, reported claims as a result of the Chilean earthquake and European Windstorm Xynthia have been limited. Accordingly, Endurance's actual losses may ultimately differ materially from the initial estimated losses."

Rates under pressure

With reinsurer Scor expecting to pay out about 80% of its entire catastrophe budget for the year on these two early events, there is mounting evidence that insurers and reinsurers were too hasty in cutting rates this January because of a benign hurricane season last year.