The second quarter of 2010 has seen some severe weather in the U.S. midwest, one of the worst events being a hailstorm which also saw tornadoes in Oklahoma. That event alone caused losses of around $1B (coverage here). How will that affect large multi-national insurance companies? You’d expect them to have good hedging and risk transfer strategies in place to ensure that the losses they pay out don’t impact their bottom line. Wouldn’t you?
It would seem not. Three of the largest insurers released second quarter earnings figures in the last few days and all are attributing a drop in profit specifically due to catastrophe losses (mostly from the storms mentioned above). Travelers, Chubb and Allstate have all seen much higher losses than previous quarters and none of the reports have any mention of the claims they experienced being offset by any risk transfer schemes.
I’ll admit it is a little ambitious to think that storms of this magnitude won’t impact the profits of insurers, and this is a very simplistic view but is it too much to think that they could offset the impact of claims through hedging strategies. Here at Artemis we discuss ways to smooth earnings through intelligent risk transfer of weather and climate risks every day and you would think that these companies would be amongst the best at doing just that. It is of course possible that their reinsurance programmes could cover a portion of their profit decline but if that is the case why don’t they tell the press? It isn’t the best PR for an insurance company to admit losses without discussing their risk transfer and management strategy.
What do you think? Let us know in the comments below.