Posted on Mar 16, 2011 by Sergio Ulloa
The Ace Group has released preliminary net after-tax loss figures for the first quarter of 2011 totaling US$450 million from its insurance and reinsurance businesses. This reflects the company's exposure to written business related to major natural catastrophes, which have already occurred in 2011.
Ace, the Zurich-based insurer, has released the estimates for losses expected to arise from the well publicized natural disasters in 2011 in order to settle investors' concerns about the global insurer's exposure to the devastating earthquake and tsunami which struck North East Japan on the 11th March 2011
and other earlier catastrophic events.
In addition to the Japanese catastrophe, 2011 has already seen a 6.3 magnitude earthquake in the city of Christchurch in New Zealand, Cyclone Yasi which struck Australia and lead to widespread flooding primarily in Queensland and exceptional winter storms across the USA.
The written business from Ace's commercial insurance and reinsurance lines is absorbing the claims arising from these catastrophes, with the earthquake in New Zealand, the floods in Australia and other damage caused by Cyclone Yasi, plus the storms in the US are forecast to cost Ace US$210 million; this estimate includes reinstatement costs. In a breakdown of Ace's estimated costs for the individual events, the earthquake in New Zealand accounts for the largest proportion at US$115 million, the catastrophic events in Australia US$80 million with the winter storms in the USA costing Ace US$15 million.
In a separate estimate provided by Ace, the company is expected to pay out between US$200 million and US$250 million as a result of the 9.0 magnitude earthquake and subsequent tsunami which struck Japan on the 11th March 2011.
The disaster in Japan has quickly emerged as one of the worst natural catastrophes the world has experienced, which prompted Ace to release its preliminary estimate of its share of potential payouts for the damage caused in order allay the fears of investors and limit the impact on its share price.
Although the full extent of the Japanese catastrophe is still unknown as it continues to unfold, insurers are attempting to settle investor's confidence after the world's financial markets experienced their biggest fall in value since the collapse of Lehman Brothers in 2008 leading to the worldwide financial crises.
Last year - 2010 - was one of the worst years on record for insurance claim payouts as a result of catastrophic events
; the insurance industry's bill for 2010 totaling some US$37 billion. The natural disasters in 2010 included major events in Chile, Haiti, Russia, Pakistan, New Zealand and China, which largely contributed to the massive claim payments incurred by insurance companies. Despite the costs incurred by insurers and reinsurance companies, many companies were able to post satisfactory financial results in 2010 and, following a tightening of risk assessment techniques, were hoping to improve returns in 2011.
According to AIR Worldwide - a catastrophe modeling expert - the insured damages arising from the Japan's earthquake and tsunami could cost the global insurance industry as much as US$35 billion. AIR also forecast that the 2011 earthquake in New Zealand will cost the insurance sector between $3.5 billion and $8 billion.
When global markets opened for trading on Monday 14th March, share prices around the world suffered substantial declines with the values of insurance companies being particularly hit; the value of shares in Munich Re, Swiss Re, Hannover Re, AIG and Chaucer were among the major names to realize double digit percentage declines in the share prices reflecting the stock markets assessment of insurance companies exposure to costs from the Japanese catastrophe.
However, it is recognized that the Japanese government self-funded a significant proportion of insurance costs because of the historical risks associated with earthquakes in the country.
The Ace Group is a leading global insurer specializing in commercial property and casualty lines. Ace also offers automobile, life, personal, accident and health insurance products. Ace's 2010 net income totaled US$3.1 billion - a 22 percent year-on-year increase. The group reported catastrophe losses - including reinstatement premiums - amounting to US$401 million, compared to US$136 incurred in 2009.
Insurance Companies Mentioned:
The ACE Group was founded in Switzerland in 1985 and is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited, a component of the S&P 500 stock index, the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries and commercial and individual customers in more than 170 countries. The company operates through four segments: Insurance-North American, Insurance-Overseas General, Global Reinsurance, and Life.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.
Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100.
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines - such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Chaucer is a member of the Lloyd's of London syndicate and underwrites in over 28 major insurance and reinsurance lines. Classes of business include: balancing global marine, energy, non-marine and aviation and in the UK motor and nuclear insurance.