08 March 2010
Published in: Cat risk - ILS
Reinsurers will shoulder Chile quake losses
The (re)insurance industry will have considerable exposure to last month's Chilean earthquake, but is well-placed to manage losses, according to Moody's in its Weekly Credit Outlook. The rating agency expects that reinsurers are likely to shoulder most of the losses.
With widespread property and infrastructure damage, insured losses are expected to be high and put pressure on insurers' profitability. Modelling firms have estimated insured losses of $2bn-$8bn [see IERM, 2 March, Catastrophe/weather, "Insured losses from Chile quake to exceed $2bn"] and the Chilean Insurance Association estimates $2.6bn. Insurers' profitability will be pressured by these losses, Moody's expects, but overall insured losses to local insurers should be limited.
This "is the result of their well-established risk transfer arrangements and catastrophe protection tools, as well as the mandated earthquake reserves set aside by all property and casualty insurers," the report said. "These advantages enable domestic insurers to sustain and fund certain levels of catastrophe losses without a direct impact on their earnings or capital."
Chilean insurers have a large reliance on reinsurance, placed mostly with international reinsurers. Moody's therefore expects reinsurers' first quarter 2010 earnings to be affected - possibly significantly for some - but does not anticipate the event to turn around the general downward pressure on reinsurance rates.
The report notes that insured losses are notoriously difficult to estimate at this stage after a catastrophe and no reinsurer has yet to issue their own estimates for insured losses.