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Tropensturm – «Irma» as an opportunity for reinsurers News

Monday, September 11th, 2017 | Economy

The damage caused by storms and floods will go into billions. However, "Irma" at the annual reinsurance meeting in Monte Carlo feeds the hope of the industry that the long-term raging price decline in the premiums could come to an end. Experts, however, dampen these expectations. In the meantime, it could be bitter for the investors of some disaster bonds.
On the financial market, the most recent developments were acknowledged by means of price increases: the shares of the world's largest reinsurance companies, Munich Re, Swiss Re and Hannover, accounted for around 4% each in the early months of Montagnach, leading the respective stock indices.
Less damage than feared
Dominated by the "Rendez-vous de Septembre" in Monte Carlo from "Irma". According to the latest assessment of experts, the storm will not make the industry as expensive as initially thought. In the US, insured losses are expected to be between USD 20 and 40 billion (EUR 17 to 33 billion), according to risk experts at AIR Worldwide on Monday. On Saturday, they still held insured losses of 15 to 50 billion dollars. In addition, there would be 5 to 15 billion in several Caribbean islands.
"Irma" was hit for the first time on the coast of Florida on Sunday and pulled along the west coast of the peninsula. The capital city of Miami was not hit directly, but Naples and Tampa were the target of the hurricane. After all, "Irma" had "not the most expensive route", said Hannover-back chief Ulrich Wallin on Monday at the meeting in the Principality of Monaco.
"Irma" is the most severe tropical storm ever registered in the region. He should hit the industry much more violently than Hurricane "Harvey" a few days earlier. Both these events are likely to weigh on the profits of reinsurers, but they do not pay much for their capital base, the rating agency Standard & Poor's (S & P) estimates.
Do not worry about profit targets
Hanover-back CEO Wallin made it clear that the "Harvey" and "Irma" do not endanger their goals for 2017. The company, according to its own data in Florida and the state previously hit by Hurricane "Harvey", only has a market share of less than two percent.
The world market leader Munich Re is also no longer very much represented in Florida. The price war of the past years had made the business unattractive for many. Even Starinvestor Warren Buffett and his holding Berkshire Hathaway have largely withdrawn from the US disaster business.
Hope for the end of the price decline
In view of the high losses, reinsurers now expect an end to the price decline. For example, Swiss Re, the world's second-largest industry representative, is reckoning with the stabilization of the premium level in securing buildings and cars. Hannover Re expects stable prices overall.
In the affected regions, Hannover-Re CEO Wallin, as well as Munich Re manager Torsten Jeworrek, predicted substantial premium increases. A price turnaround in the entire business world, however, did not yet want to forecast. An even more serious event would require this, says William Hawkins, insurance analyst, Keefe Bruyette & Woods.
Annual meeting of the industry
Reinsurers take risks from primary insurers, such as the Allianz, Axa and Generali, which thereby hedge part of their business. In the Principality of Monaco on the Côte D'Azur, representatives of both sides and brokers meet annually in September to set prices and conditions for the contract renewal to the following year change.
Lastly, minor catastrophe losses had repeatedly given primary insurers the opportu- nities to push down prices for reinsurance protection. Large rating agencies anticipated that this downtrend will continue in 2018 before "Irma". S & P had discounts of up to 5 percent on the slip, the agency Fitch even up to 7.5 percent.
Capital flooding and low interest rates
Expectations were also compounded by a capital inflow and low interest rates. In S & P, for example, capital in classic reinsurance worldwide grew from around 350 billion to 443 billion dollars between 2011 and 2016. As a result, the supply of reinsurance protection grew, and demand remained behind.
In addition, non-inves- tors such as pension and hedge funds pushed industry into the business. By investing in catastrophe bonds and other young forms of reinsurance, they were betting that certain catastrophes would not occur. According to insurance broker Aon, this alternative reinsurance capital grew from about 28 billion to $ 81 billion between 2011 and 2016.
First test for disaster bonds
Now, experts are looking at whether owners of catastrophe bonds affected by "Irma" once again invest high sums in this risky business, which ideally promises high returns. "This is likely to be the first major test of how catastrophe borrowers are reacting to such losses," said Robert DeRose, an analyst specializing in insurer-based rating agency A.M. Best.
According to S & P, 13 different catastrophe bonds from "Irma" could be affected. The money of the most institutional investors would be in doubt.
(AWP)

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