Catastrophes push up premiums
The cost of protecting Australian underwriters against natural catastrophes is likely to rise, one of the world's biggest insurance brokers says, despite billions in new capital flowing into reinsurance markets.
With insurers facing claims of about $100 million from the worst NSW bushfires in decades, the chief executive of UK broker Jardine Lloyd Thompson, Dominic Burke, said the frequency and cost of global catastrophes were on an upward trend.
This was likely to push up the price of reinsurance, used by underwriters such as QBE, IAG and Suncorp to manage their risk.
"The cost of the insurance, from a catastrophe perspective ... the trend looks like it's heading upwards in terms of pricing," he said.
Global insurers have faced hefty claims from a spate of massive natural disasters in recent years, such as hurricane Sandy in the US last year and Japan's earthquake of 2011.
Mr Burke argued reinsurance prices were probably not taking the mounting costs of disasters into account.
"There were 205 catastrophe events in 2012 and that doubled in number since 1980, and 2011 saw the costliest year for catastrophes, which cost insurers $US435 billion, but only 40 per cent of those losses were insured," he said. "Is that cost embedded in current pricing? I think it would be fair to say unlikely."
JLT is the world's fourth-largest insurance broker to corporate and government clients. It writes about $1.2 billion in premiums a year in Australia.
It is aggressively expanding in reinsurance broking - acting as an intermediary between insurers wanting to offload risks and reinsurance giants such as Berkshire Hathaway and Munich Re.
Reinsurance prices charged to Australian underwriters rose sharply in 2011 after the Queensland floods and Christchurch earthquakes, causing the industry to raise premiums.
There have been some predictions that reinsurance prices would cool this year, as global capital in search of higher returns flooded into the market.
But Mr Burke said that this influx of capital could potentially be underpricing risk of catastrophic events.
"So far this year about $US7 billion in global capital has entered this space, partly driven because of the low-yield environment," he said. "This new capital is creating a changing dynamic."
While in Australia, Mr Burke is meeting with the bosses of QBE, Suncorp, IAG, Zurich and Allianz, after the company last month bought the reinsurance broking division of US firm Towers Watson.
Mr Burke described reinsurance broking in Australia - which is dominated by Marsh, Aon Benfield and Willis Re - as a "closed shop". Jardine Lloyd Thompson had been investing strongly in this sector, he said.