Earthquake won’t affect insurance rates

Despite the destruction of more
than 4,000 buildings in Haiti as a result of the 12 January earthquake,
insurance rates in the Caribbean region aren’t expected to be impacted because
of the low level of insured losses.

London-based Axco Insurance
Information Services Ltd. has estimated that total property and casualty
insurance premiums in Haiti only amounted to about US$19 million annually and
that earthquake insurance penetration was extremely low.

That information corresponds with
what is understood by local property insurers, who all believe, however, that
earthquake risk in the region will weigh on the minds of reinsurers going
forward.

Aon Cayman National Insurance
Brokers Ltd. Managing Director Peter Popo said he hadn’t heard anything from
the property insurers his company deals with regarding insurance rate increases
due to the earthquake in Haiti.

“Most of the insurers already had
their renewals in place by then,” he said.

Michael Gayle, senior vice
president property and casualty of Sagicor General Insurance (Cayman) Ltd. said
his company had renewed its reinsurance treaties from the first of Janaury, so
the earthquake would not impact this year’s insurance rates at all.

“Not all companies in Cayman renew
their treaties for January, so it is possible that those that renew after
January may face some resistance from the reinsurance market,” he said. “Having
said that, it does not seem as if there will be any material impact on this
year’s renewals.”

One company that renews its
reinsurance treaties after the first of January is Island Heritage, which
renews them on 1 April.  CEO Garth Macdonald
said he and others from his company were heading out to Bermuda and London next
week to begin its reinsurance negotiations. 
Like others in Cayman’s insurance industry, he didn’t expect to see an
increase because of the earthquake in Haiti.

“I don’t think it will have an impact
because the insured risk was so sparse,” he said, adding, however, that he
thought the subject of earthquakes would come up during the negotiations with
reinsurers, especially because Cayman felt the 5.8 magnitude trembler just a
week after the Haiti quake.

“I’m sure we’ll be asked about it
on our trip,” he said.

 Island Heritage customers might not have
anything to fear even if reinsurers did increase rates to the company, according
to Mr. Popo.

“I don’t see them taking a position
contrary to the rest of the market,” he said, noting that since most companies
already have their reinsurance treaties in place for this year, premium rates would
largely be market driven in any case.

Mr. Macdonald, who is also the
president of the Cayman Islands Insurance Association, said the earthquake in
Haiti would probably raise awareness of Caribbean earthquake risk in the minds
of reinsurers going forward.

Mr. Gayle agreed.

“The possible impact of the Haiti
quake on the rest of the region remains unknown, and as such, the future impact
on reinsurance costs cannot be determined at this time,” he said. “I would
imagine, however, that it will remain in reinsurers minds for the next
renewal.”

A reduction in rates?

Some Cayman insurance customers
could actually see a reduction in their premiums this year.

Mr. Macdonald said the lack of
major insurance claims last year, not only in the Caribbean, but also in the
world, could lead to some rate reduction.

“There were a lot fewer natural
disasters in 2009 than in 2007 and 2008,” he said.

Despite that fact, Mr. Gayle said
his company’s reinsurers still regard Cayman unfavourably and that there was
continued pressure for rate increases.

“We have been able to make a case
for stability rather than increases and this has been supported by most of our
reinsurers, but has not found favour with some,” he said. “Our expectation is
that there may be some individual fluctuation in rates, but overall, we expect
the rates on our portfolio to remain stable.”

Mr. Popo said he was seeing some
easing of rates this year.

“There is some movement, but not a
whole lot; certainly not as much as last year,” he said, adding that the
reductions he was seeing this year were more on larger risks and not on
individual homes.

The Cayman Islands experienced
large increases in insurance premium rates after Hurricane Gilbert in 1988 and
especially after Hurricane Ivan in 2004. 
Although rates jump very quickly after a disaster, they take years to
come back down.

Mr. Gayle said insurance rates were
very much a function
of supply and demand of reinsurance capacity, which is driven to a significant
degree by hurricane activity in and outside of our region”.

 “Unless reinsurers’ views on Cayman change and
more capacity becomes available, any reductions in rates over time are likely
to be relatively small,” he said. “If there is an active hurricane season, we
could see increases again. Until such time, we will continue to try to maintain
stability.”

Nigel Twohey, former president of
the Cayman Islands Insurance Association and currently an employee of the
Bahamas-based insurer J.S. Johnson and Co., said he was expecting to see a
little easing on insurance rates in the region.

“But the [Haiti and Cayman] quakes
will stop them from sliding too much,” he said.

Although he also doesn’t think the
Haiti earthquake will affect insurance rates this year, he believes reinsurers
will take note of the risk.

“It will concentrate their minds on
earthquakes,” he said.

1 COMMENT

  1. Thank goodness for small favors. But if there is any way the insurance companies can find to make us pay more for taking a gamble, they will, which means an even higher cost of living in the Cayman Islands.

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