Canadian reinsurance rates up sharply, says report

Last year’s dismal financial returns for reinsurers have led to a sharp 44.1% increase in reinsurance premiums in 2002, says a report from global reinsurance broker Guy Carpenter.
In its study “The World Catastrophe Reinsurance Market 2002”, the brokerage notes that according to Swiss Re figures, rates rose this year for the third year in a row, although 2000 saw an increase of only 3.4%, followed by 9.3% in 2001. Last year’s financial returns for reinsurers provided ample incentive for hardening, with an industry combined ratio of 119.1%, despite the lack of a major natural catastrophe loss here.
“Rate increases are expected to continue into 2003,” the report suggests, adding “Multi-year programs are expected to be eliminated entirely from the marketplace in 2003.”
And while terrorism risks continue to be an issue in the year ahead, storm and earthquake exposure will also be a focus. “A lack of quality aggregate data continues to hinder the ability to underwrite and price this exposure in Canada,” the study says. “Without good data, insurers are unaware of their actual exposures and reinsurers are left to price and address the risk based on assumptions.”
The study also notes that a key area of exposure is earthquake and fire-following earthquake. It notes that claims from the 1998 ice storm, the 1996 Saguenay flood and the record hail losses of 1991 in Alberta could “pale in comparison to the damages that would be suffered if earthquake and fire-following earthquake losses and claims arise from a major seismic event in British Columbia or Quebec and eastern Ontario”. It suggests that economic losses from a B.C. earthquake could hit $30 billion, with insured losses as high as $15 billion. For Quebec or eastern Ontario such an event is estimated to cause $5 billion in insured losses.