Reinsurers weighed down by flood fears

Reinsurers and manufacturers have adopted a wait-and-see approach as reinsurers have limited their exposure to catastrophic coverage while manufacturers bought only minimum insurance, Vinod Krishnan, chief executive of Aon Benfield Asia, a leading global reinsurance intermediary adviser, said yesterday at a seminar titled “Critical Lessons from the Thai Floods”.
“International reinsurers demand high premium rates, varying between 5 and 10 per cent, for catastrophe insurance coverage,” Krishnan said.
He said the Thai government’s plans to prevent the next floods might win investor confidence to some extent. If there is no flood this year, the premium rate may gradually drop next year and years later, he said.
He said he did not expect the premium rate to return to normal next year as insurers had lost money, estimated at as much as US$15 billion (Bt450 billion) compared with the very small amount of premiums they got before the floods struck last year.
He said the government insurance scheme helped households cut the cost of coverage. The government plans to collect only 0.5 per cent of insured value from households, 1 per cent from small and medium-sized enterprises and 1.25 per cent from large firms for catastrophe-protection coverage.
Gabor Jaimes, Swiss Re’s head of property product management for Asia-Pacific, expressed his concern at the lack of information about flood hazards worldwide, not only in Thailand. He said Swiss Re, one of the largest reinsurers, was creating a model flood-hazard map for its clients, aimed at helping local insurers manage risks from catastrophes better.
In the model, China is ranked as most risky because of the huge foreign direct investment and its historical floods. Thailand is also on the map of high-risk countries, according to the model.
“The Thai 2011 flood was the largest fresh-water flood in global history,” he said.
Insured catastrophic losses were estimated at $12 billion, or 266 per cent of premiums of Bt4.5 billion.
Jaimes said international insurers suffered 70 per cent of total losses, regional firms shouldered 20 per cent and local firms 10 per cent.
He said Swiss Re had cut its business in Thailand to manageable level from unmanageable level before last year’s floods.
India and China also often face severe flooding, he said. Catastrophic events occurred in many places last year – the floods in Thailand and Australia, storms in the United States, an earthquake in New Zealand and the earthquake and tsunami in Japan. The insurance cost exceeded $110 billion. Of the total, 60 per cent of catastrophes arose from the Asia-Pacific region.
Meanwhile, Chukiat Sapphaisal, a member of the strategic formulation committee for water resource management, said Thailand would not face severe floods this year if the government gets good cooperation from communities.
He said the committee had decided on the floodplains and floodways. “We’ re waiting for policy-makers to decide.”
The government needs to have 2 million rai (320,000 hectares) of floodplains and has to provide compensation of about Bt5,000 per rai to farmers affected by the plan, he said.
The government plans to spend Bt20 billion this year and next and Bt300 billion in the long term for flood prevention in the Chao Phraya River basin and another Bt50 billion for other rivers, he added.