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Shaken and Stirred

As I write this a series of aftershocks are reported to have hit Chile, a country still beleaguered following last weekend’s major earthquake.

Reporting on insurance issues can be a strange business, not least when catastrophes strike and you are expected to pay lip service to the humanitarian aspects of the disaster while concentrating on the economic and insured loss scenarios.

But even the cold, hard business of assessing the loss is far from straightforward. Especially following quakes where estimates of costs typically rise over time.

However, this contrasts the need for companies to inform investors of their exposure promptly and the pressure applied to the modellers (by the media amongst others) for loss estimates that are both fast and accurate – two often conflicting goals.

A Dow Jones story that was reprinted in the Wall Street Journal gives an excellent assessment of why this proves so difficult for the modellers. The modellers have come in for criticism over the years due to the wide range of estimates that they provide and the inherent lack of accuracy in a range that may extend $5bn from lower to upper limit.

As this article in Business Insurance shows the criticism hasn’t caused the cat modellers to alter their behaviour.

EQECAT Inc that insurers should expect to pay from $3 billion to $8 billion in losses while AIR Worldwide Corp would only say that it expects insured losses to exceed $2 billion.

Such estimates bring to mind a comment from a Morgan Stanley analyst a few years ago who called the loss estimates produced after Windstorm Kyrill had swept through Europe a “puzzling search for some EUR3-5bn”.

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