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Catastrophe
Friday, June 1, 2007
No sweat

Severe storms caught many by surprise in KwaZulu Natal, when waves measuring as high as eight metres pounded the coastline in the early hours of 19th March. At least one person lost was killed. Extensive losses have been experienced with the cost of damage estimated in excess of R500m. Assessment of the cost of repairs to Durban’s infrastructure was in the region of R85 million alone. This was in addition to the R30 million needed after the heavy rain and wind storms of the previous weeks.

It has so far been estimated that more than a R1 billion will be needed to repair the infrastructure. But it will clearly take some months to get an accurate picture of the damage costs, and how much will be carried by the insurers and their reinsurers in terms of catastrophe treaties.
Mutual & Federal’s general manager of claims, Howard Cohen, says by the first week of May his company had received 22 000 claims totalling R45m. “We are treating the storms as two incidents, the hurricane on 17th March, followed by the tidal wave on the 18th.


“Though we do have catastrophe reinsurance cover this only kicks in at R75m per one event. I am extremely cautious when considering the final outcome as we know from experience that these sorts of claims tend to have a long tail. It takes many weeks to assess all the damage and to acquire proper estimates of repair costs. So we think our claims will possibly exceed R50m, but is unlikely to reach our catastrophe limit.”
Nor does he think the loss will have any negative impact on future insurance premium rates. “Our exposure for natural perils is already largely priced in to our rates. On average we expect a large catastrophe loss of this nature once a year. There was the Eastern Cape storms last year, for instance. That cost us R85m in the end, so the losses are well within norms, so to speak.”
M&F has reported a 3,5% fall in adjusted pre-tax operating profit from R232m the same period last year to R224m for the three months to end March 2007, largely as a result of the bad weather losses. Aside from the KZN events, significant weather-related losses also took place in Gauteng in January this year. In all its underwriting surplus was R33m for the quarter (compared to R66m in 2006).
Global warming is no longer an esoteric concept, comments Mr Cohen. “Many experts are discussing not whether it is happening, but rather how it is happening.”
The reinsurance industry in particular has been doing an enormous amount of research on the change in weather patterns and few doubt the prospect of claims from natural perils are on the rise.
The other issue, he says, is the question of populations continuing to encroach the coastlines as urbanisations pushes out in all directions. As far as the KZN coastline is concerned there are misgivings about some of the construction work that has been going on there the last decade. It is possible a considerable amount of the losses incurred were through bad planning and insufficient engineering work being carried out, rather than unavoidable weather losses.
For its part, as M&F processes the claims it will be advising on any reconstruction work required in this regard with a view to improving the risk. In any event some home and business owners may find their premiums being re-rated where their properties are located too close to the coast.
M&F is one of the smaller homeowner insurers, simply because its bank-related exposure arises from Nedbank, the smallest home lender. A follow up report will hopefully provide a more detailed picture of the losses with comment from the two biggest players, Absa (which has its own short-term insurance licence) and, of course, Santam. 
 

Copyright © Insurance Times and Investments® Vol:20.5 1st June, 2007
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