It’s almost one year on from the 27th February 2010 earthquake in Chile and reinsurance intermediary Aon Benfield has issued a report which looks into the science behind the earthquake, the impact on the local insurance market and global reinsurers and outlines steps which can help insurers prepare for similar catastrophes.
The reinsurance market coped well with the earthquake and Aon Benfield say it particularly benefited the Chilean infrastructure as it helped them recover without requiring assistance from their government.
95% of the $8.5 billion insured loss fell to reinsurers to deal with. Aon Benfield say that a comparable event in the U.S. would only see 50% of the insured loss passed on from insurers to reinsurers. The market dealt with this loss effectively and without the need for capital market risk transfer (a larger loss could have been very different). In the case of a U.S. event, with only 50% covered by reinsurance, it’s clear the role that catastrophe bonds can play to provide additional reinsurance cover and to increase that percentage.
Paul Felfle, head of Aon Benfield Analytics for Latin America, said: “The Maulé earthquake was the second largest insured earthquake loss after the Northridge event in 1994. It served as a test of the Chilean insurance market, throwing into the spotlight its contingency plans, the regulatory framework, construction codes and ultimately the effectiveness of the reinsurance market. Overall, the system designed to protect the public and insurance companies proved highly effective.”
Stephen Mildenhall, head of Aon Benfield Analytics, added: “From a reinsurance perspective, insurance companies were able to see that their cover not only provided an accretive form of capital, but that, based on current estimated losses, they had purchased sufficient limits to protect their balance sheets and meet their obligations to the insureds of Chile. The lessons learned in Chile can be utilized to prepare for future events both in Chile and in other countries with similar loss potential from natural hazards.”
You can download a copy of the full report from the Aon Benfield website (in PDF format).