Catastrophe losses reveal potential emerging market risks: Guy Carpenter

The remarkable clustering of global natural catastrophes in 2010 and 2011 revealed unexpectedly expensive “cold spot” losses in areas not previously considered risky, notes a new report from Guy Carpenter.

This clustering demonstrates there are growth opportunities in emerging economies that pose a unique set of challenges to reinsurers, says Cold Spots Heating Up: The Impact of Insured Catastrophe Losses in New Growth Markets.

Reinsurers looking to ensure profitable growth on the frontiers of developing markets are advised of the immediate need to plan and manage risk exposures, says David Flandro, managing director and global head of business intelligence for Guy Carpenter. “As rapid economic growth continues to centre around emerging markets and insurance penetration rises in these economies, reinsurers will need to be prepared to handle the expensive cold spot losses that are occurring in non-peak zones,” he says in a statement from Guy Carpenter, a global risk and reinsurance specialist.

The report offers insight into catastrophe risks in developing economies and new markets, including emerging Asia and Latin America. For example, natural catastrophes in Asia, Australia and New Zealand and Latin America between 2009 and 2011 accounted for 60% of total insured losses, up substantially from 11% between 2002 and 2008.

“Many emerging economies are exposed to wide-ranging and severe natural catastrophes, with tropical cyclones, earthquakes and floods regular occurrences,” the company reports. Add to that weather patterns such as El Niño and La Niña that can significantly influence extreme weather events by shifting the risks of storm and flood damage in recognizable ways.

“Flooding in particular is a major concern, as flood risk is prevalent and increasing in almost every emerging market and modelling solutions for this peril are virtually non-existent,” the statement adds.

Developing economies currently account for about two-thirds of overall global economic growth, creating opportunities for reinsurers. That said, “companies need to improve their risk management capabilities in order to closely monitor their risk exposures, especially since insurers’ enterprise risk management frameworks in developing markets have generally lagged those in the developed world.”