Yesterday, global reinsurance company, PartnerRe Ltd. (PRE), announced that the catastrophe (CAT) losses in Japan are expected to impact the first quarter earnings by about $500 million, pre-tax. Last month, Japan was hit by a devastating earthquake with a magnitude of 9.0 coupled with tsunami, both of which have severely affected Japan’s economy and infrastructure.
Meanwhile, blasts and leaks in nuclear plant reactors have further aggravated the losses, besides causing massive destruction to thousands of lives and infrastructure of the country. As a result of these massive catastrophes, PartnerRe projected total property and casualty insurance claims for the industry between $25 billion and $30 billion.
Last month, PartnerRe also stated the initial projections of the impact of loss from the New Zealand earthquake that occurred in February this year. Management expects pre-tax loss of about $180–$240 million that will be recorded in the first quarter of 2011. Total industry insured loss is estimated between $7.4 billion and $11.1billion.
Also in February this year, PartnerRe provided the initial loss estimates for the floods and cyclone in Australia, which occurred in January 2011, in the range of $80–$110 million.
All the above losses are expected to be recorded primarily within the Catastrophe sub-segment. Moreover, the catastrophe losses will be recorded during the first quarter of 2011.
PartnerRe continues to be hit by catastrophes that have adversely affected the underwriting results and recorded huge losses in the investment portfolios. Such uncertainty and volatility not only reduces financial flexibility and reserves of the company but also weakens the underwriting capacity.
Additionally, such catastrophes coupled with the soft property-casualty cycle have resulted in decline in policy renewals, which adversely affected the reserve development and also generated single-digit return on earnings, well below the company’s 13% long-term target.
Hence, we believe that the company’s poor casualty underwriting experience, lack of risk retention by clients and low risk appetite for reinsurers coupled with high CAT losses could bring in negative surprises in future.
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