General Insurance Article - Thai Flood Loss Shows Challenge of EM Reinsurance


 Earthquakes in Japan and New Zealand as well as floods in Thailand and Queensland meant that 2011 saw the
 highest-ever insured losses from natural catastrophes, with approximately 70% of expected reinsurance claims coming from the Asia-Pacific region. The nature of these events has meant that it has taken considerably longer for
 reinsurers to determine accurate loss estimates, compared with traditional catastrophe regions, such as the US and Western Europe.

 The Thai floods were not as rare as other natural catastrophes in the region and therefore it might have been expected that reinsurers would have had accurate estimates of the loss more quickly. The tsunami that hit the northeast coast of Japan is considered a once in a millennium event, whereas the Thai floods are thought to be a one-in-50 year event.

 The doubling of the insured loss estimates for the Thai floods since December, to USD15bn-20bn from USD8bn-11bn, highlights the difficulty of assessing losses in often remote locations. It also suggests that many reinsurance companies have a less detailed understanding of the potential scale and nature of losses that can arise in certain regions within Asia,
 compared with established Western insurance markets.

 Early estimates for US hurricane damage, for instance, are often close to the final number. One possible explanation is the limited accuracy of catastrophe model simulations for the Asia-Pacific region, which are seeing increased use by the industry.

 Fitch believes that the 2011 Asia-Pacific loss events have provided the reinsurance industry with a wake-up call as it diversifies insurance portfolios. The importance of better understanding the specific risks faced when underwriting new risks in emerging insurance markets is a key ingredient to success.

 As Fitch undertakes its assessment of reinsurers' ratings, part of the agency's analytical focus is directed to assessing the quality of underwriting and risk management techniques employed by individual companies.
  

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