The World Economic Forum, in collaboration with Citigroup, March & McLennan Companies, Swiss Re and the Wharton School Risk Center, has published Global Risks 2007: a global risk network report. The report describes and analyzes what the report describes as 23 “core global risks,” including pandemics, climate change, oil shock and terrorism, and suggests possible institutional innovations that may help mobilize businesses and governments to address the risks, as well as strategies for mitigating such risks.
Industry Background
Florida Governor signs new hurricane preparedness and insurance bill into law
New Florida Governor Charlie Crist has signed his first bill into law, House Bill 1A from a special session of the Florida Legislature dealing with insurance rates for homeowners. One of the principal goals of the special session was to increase the availability and lower the cost of homeowners insurance, particularly in coastal areas. A House of Representatives staff analysis of the bill contains background information about the insurance market in Florida and the impact of the eight major hurricanes that hit Florida during the 2004 and 2005 hurricane seasons. The staff analysis reports that claims payments were made relating to the eight hurricanes totaling $33,346,477,364, and describes the resulting impact on the number of insurers writing homeowners coverage in the state, the cost of coverage and the cost of reinsurance.
This 176 page bill makes extensive changes to the Florida property insurance and reinsurance markets. The changes are summarized in the staff analysis. Among the changes is expanding the Florida Hurricane Catastrophe Fund to provide a “temporary emergency program” for the 2007, 2008 and 2009 hurricane seasons providing less expensive reinsurance for insurers. Savings from the reduced cost of reinsurance must be passed on to consumers. It is unclear what the impact of this new law will be on the reinsurance market, but a large amount of reinsurance premium may now be diverted from the private reinsurance market to the public avenues set up or modified in this bill.
North Korea suspected of massive reinsurance fraud
One of the more intriguing articles about reinsurance recently has been one which suggests that North Korea may be engaged in massive reinsurance claim fraud to generate hard currency for its ailing economy. All insurance in North Korea is written through one state-owned company, which reinsures the risks through Lloyds and non-Lloyds reinsurance companies. It is suspected that North Korea has been submitting bogus claims and claims with phony documentation, encompassing losses aggregating as much as $150 million. The closed nature of the society prevents reinsurers or claims agents from investigating the losses. This is interesting reading at Foxnews.com (until they archive the link).
Re Risk blog provides news and commentary on the London markets
Readers of this blog may be interested in exploring Re Risk, a blog relating to reinsurance maintained by Jolyon Patten, a solicitor specializing in reinsurance and insurance law with the UK Halliwells law firm. Re Risk aims to be a rolling and relatively informal round-up of news and commentary about the London insurance and reinsurance market. It provides a great variety of information and opinions relating to the London markets in an entertaining and informative format.
No global reinsurers rated above AA- by S&P
Standard & Poors recently lowered its ratings on Swiss Re to AA-. This action is notable not so much because of its potential impact upon Swiss Re, but because it means that there are now no stand-alone reinsurers that have a S&P rating of above AA-. S&P views the reinsurance industry to be volatile and underperforming in terms of earnings.