S&P Examines Effects Of Chilean Earthquake on Reinsurers

A study published by Standard & Poor’s Ratings Services – entitled: “Reinsurers Foot The Bill For Chilean Earthquake Losses” – indicates that the global reinsurance industry has “shouldered a significant portion of the economic losses related to the powerful earthquake that struck Chile on Feb. 27, 2010.

“As of the close of second-quarter 2010, this event has generated an estimated $8 billion-$12 billion in insured losses.” As a result S&P points out that the “these losses put a significant dent in many re/insurance companies’ annual catastrophe budgets. In fact, in many cases, catastrophe losses have already exhausted more than half of re/insurers’ budgets, thereby reducing the built-in cushion for the remainder of the year.

“In the first quarter, re/insurance companies’ Chilean earthquake industry loss estimates ranged from $2 billion to $10 billion. However, as more information became available, some industry participants revised the industry estimated insured loss upward to $10 billion-$12 billion.”

As an example S&P cited Lloyd’s estimates of a pretax loss of $1.4 billion, which it announced at the end of May. Lloyd’s indicated that its losses “were consistent with the upper range of industry loss estimates. Incurred claims reported by insurers and reinsurers outside the local market have already reached $7 billion.”

S&P also indicated that “uncertainty remains regarding the Chilean earthquake insured loss estimates. We expect that earthquake losses will likely continue to develop as additional claims information flows in.

“Nevertheless, we believe the accumulated losses from the Chilean earthquake–coupled with the catastrophe losses from European windstorm Xynthia, the U.S. East Coast winter storms, the severe weather in Australia, and the Deepwater Horizon oil rig disaster–could have material unfavorable effects on the earnings of property/casualty re/insurers worldwide.

“If 2010 turns out to be an active catastrophe year, as the trend indicates, and aggregate losses are in the tens of billions of dollars, the cumulative effects of these losses could erode the capital of a few re/insurers, which could cause us to take rating actions.”

The report is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

Source Standard & Poor’s