“Cold Spot” catastrophe losses reveal emerging market risks

Guy Carpenter has published a new report examining catastrophe risks in developing economies and how they are likely to affect the (re)insurance sector, as companies target growth in new markets.

According to the study, “the recent and remarkable clustering” of global natural catastrophes highlight increasing risks in non-peak zones at a time when insurance demand in emerging markets is on the increase.

As a result “cold spot” losses in areas not previously considered as risky have been unexpectedly expensive.

The report further examines issues and developments relating to global natural catastrophes and rapid economic growth in emerging markets, including:

• Changing risk perceptions following recent loss experience – with the clustering of costly global losses in 2010 and 2011, (re)insurers are re-asre-assessing certain portfolios and accumulated risks in non-peak zones.

• Increasing non-peak zone Losses – between 2009 and 2011, natural catastrophes in Asia, Australia and New Zealand and Latin America accounted for 60% of total insured losses, compared to 11% between 2002 and 2008.

• Managing natural disaster risks in emerging markets – many emerging economies are exposed to wide-ranging and severe natural catastrophes, with tropical cyclones, earthquakes and floods regular occurrences.

• Enterprise risk management – as carriers target new opportunities in emerging markets, there is a growing need for better and more comprehensive tools for modeling risk.

• Diversification – Increasing losses in non-peak zones have implications on carrier’s geographic diversification strategies.

• Catastrophe models – Although catastrophe modeling solutions for developing markets have improved in recent years, significant gaps in coverage and model limitations still remain for countries outside the established markets of the United States and Western Europe.

• Reinsurance protection – Reinsurance remains the best form of protection against catastrophic losses and many insurers are revisiting aggregate coverage, due to the increased frequency of major catastrophic events seen in 2010 and 2011.

According to Guy Carpenter, demand for non-traditional reinsurance cover is likely to increase in developing economies as insurers pursue growth in new markets.

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Category: Companies News, Insurance News