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Insurance Costs

Unread postby Newfie » Fri 18 May 2018, 15:16:56

I thought it might be interesting to have a thread onhow the Insurance Industry is being impacted by fossils fuel use and subsequently climate change. I know MUNICH RE AND LLoyds are adapting positions on the increasing cost of catastrophe related insurance, but don’t have any links ATM. Maybe other can contribute.

But here is an article out of Canada, roughly 1/10 the size of the USA and not generally subjected to hurricane damage.

https://www.theglobeandmail.com/busines ... re-rising/

Climate change is already having a significant effect on the property and casualty-insurance industry, with immediate business implications for insurers and their clients. More frequent extreme weather events have increased the level of weather-related insurance claims for floods, forest fires and other catastrophic events, globally and locally. For example, the Organization for Economic Co-operation and Development reports that annual losses from overland flooding have grown to more than US$40-billion annually in recent years; more flood events occurred in 2010-13 than in the whole decade of the 1980s.

Canadian insurers are now facing claims on natural catastrophes – floods, forest fires and other extreme weather events – of approximately $1-billion annually, according to the Insurance Bureau of Canada. This amount has grown from $400-million annually in previous decades. Claims are expected to continue to increase, as is damage to personal property and public assets. This aggregate number does not include smaller events that are not considered catastrophic (an event with total claims less than $25-million), so the full impact of climate change on Canadian insurers and clients is likely understated.
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Re: Insurance Costs

Unread postby onlooker » Fri 18 May 2018, 15:55:54

Very nice thread you started Newf.
https://theconversation.com/how-a-billi ... -now-84854
What enables Florida’s staggering growth against environmental odds? The answer, in part, comes down to how property insurance protects the state’s real estate against disasters. In 2015, Floridians spent US$10.8 billion on homeowners’ insurance to protect more than 6m properties. The total insured value protected by the state’s homeowners’ market is a soaring $2.1 trillion, roughly equal to the annual economic output of India


The question is for how much longer can Florida residents prop up the huge insurance industry in a state which sees so much natural disasters and presumably alot more going forward
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Re: Insurance Costs

Unread postby ROCKMAN » Fri 18 May 2018, 16:01:50

Newfie - Two factors to consider. First, as economies grow more infrastructure is built out. For instance hurricane rains flooding thousands of expensive homes in west Houston that didn't exist there 25 years ago. Second, wanna guess how many homes in Houston that weren't covered by flood insurance when Harvey blew thru that will be the next time we get hit with a hurricane. Of course, those aren't the only pertinent factors but they shouldn't be ignored either, should they?
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Re: Insurance Costs

Unread postby jawagord » Fri 18 May 2018, 17:32:13

I think this is the guy that owns Swiss RE, but then again what does he know I think he actually likes insuring against hurricanes, great premiums vs infrequent payouts?

Berkshire Hathaway CEO Warren Buffett on Monday said he has not yet seen sufficient evidence that climate change is affecting weather events to a degree that would make him change the way his conglomerate's insurance businesses write policies.

Events such as Hurricane Sandy have raised concerns that global warming is increasing the intensity and frequency of so-called superstorms.

"I have not seen anything yet that would cause me to change the way we look at evaluating quakes, tornadoes, hurricanes by atmosphere. Now, that may happen some day," he told CNBC's "Squawk Box."

He added that the frequency of Florida hurricanes has been "quite low" for roughly the last decade compared to historical trends, and storms in the Sunshine State, Texas and the U.S. Southeast have been "remarkably benign."

Buffett delivered a similar assessment in last year's annual letter to shareholders. In that letter, he said climate change had not up until then "produced more frequent nor more costly hurricanes nor other weather-related events covered by insurance."

https://www.cnbc.com/2017/02/27/warren- ... e-biz.html
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Re: Insurance Costs

Unread postby Newfie » Fri 18 May 2018, 17:35:59

No, they should be included. It shows how folks are evaluating the risk and looking for some relief.

So as folks want protection because of the perceived threat the industry sells them product. The more folks are arare if, or spooked by, the threat the more insurance they want.

The insurers then need to balance their costs against revenues. If they sell lots of insurance betting on a low likelihood and it turns out poorly, then they are in trouble. Both Lloyd’s and MunicRE, as well as all major companies, had to adjust downward earnings projections due to last years storms. They need to increase policy costs to cover that loss and insure themselves against future loss. So they need to be very sensitive to the potential losses.

That’s why I think the insurance industry is interesting. They are the ones who really get paid to place future bets. And they have money to do the research.
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Re: Insurance Costs

Unread postby Newfie » Fri 18 May 2018, 17:38:06

Re Buffett...

Exactly what I would say if I was over extended and wanted to reassure investors, while I quietly worked to reduce those risks and prayed for a couple of quiet years.
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Re: Insurance Costs

Unread postby jawagord » Fri 18 May 2018, 18:06:46

Newfie wrote:Re Buffett...

Exactly what I would say if I was over extended and wanted to reassure investors, while I quietly worked to reduce those risks and prayed for a couple of quiet years.


Well I guess those prayers were answered!

* Berkshire Hathaway’s insurance businesses generated after-tax earnings from underwriting of $407 million in the first quarter of 2018, compared to a loss of $267 million in 2017.
* Insurance results thus far in 2018 included reductions of losses for prior years’ property/casualty loss events and the favorable effect of a lower effective income tax rate, partly offset by increased losses on retroactive reinsurance contracts.
* At GEICO, premiums were $7.9 billion, up 15.6 percent, reflecting increased premiums per auto policy of approximately 8.2 percent over the past 12 months. The loss ratio in the first quarter of 2018 declined 5.0 percentage points to 76.7.
* Within the Berkshire Hathaway Reinsurance Group, premiums at National Indemnity Co. (NICO Group) in the first quarter declined 3 percent compared to 2017. General Re Group’s premiums in the first quarter of 2018 were $972 million, an increase of $318 million (49 percent) compared to 2017.
* On a combined basis, the property/casualty reinsurance business generated pre-tax underwriting gains of $130 million in the first quarter compared to pre-tax losses of $410 million in 2017. There were no significant catastrophe loss events in the first quarter of 2018. The company incurred estimated losses of $102 million in the first quarter of 2017 from a cyclone in Australia.
* “Industry capacity dedicated to property and casualty markets remains high and price competition in most reinsurance markets persists. We continue to decline business when we believe prices are inadequate,” the company said in the quarterly report.


https://www.insurancejournal.com/news/n ... 488415.htm
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Re: Insurance Costs

Unread postby Newfie » Fri 18 May 2018, 19:08:23

“We continue to decline business when we believe prices are inadequate,” the company said in the quarterly report.”

That’s is the salient point. To stay ahead of the risk curve.
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Re: Insurance Costs

Unread postby Newfie » Fri 18 May 2018, 19:25:42

From Scientific American

Warren Buffett, chairman of Berkshire Hathaway Inc., a major player in the insurance industry, highlighted the risk of hurricanes last month. Still, he has said the company is prepared and can rewrite its policies each year to account for those risks (Climatewire, Feb. 27).
That’s a common line from insurers. But it’s not realistic, said James Jones, director of the Katie School of Insurance & Financial Services at Illinois State University.
“You can do this on an individual basis,” Jones said. “You can attempt to reprice your policy, but it doesn’t mean that you’re going to get the price you want.”
Insurers cannot block off entire regions from their business, like the southeastern United States, which is acutely exposed to hurricanes and flooding.”

https://www.scientificamerican.com/arti ... -insurers/
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Re: Insurance Costs

Unread postby jawagord » Fri 18 May 2018, 19:53:39

Newfie wrote:“We continue to decline business when we believe prices are inadequate,” the company said in the quarterly report.”

That’s is the salient point. To stay ahead of the risk curve.


You omitted the predecessor statement where they said the market is very competitive, a more salient point that lots of companies want to insure those areas. I don't put much stock in articles by academics who have no financial stakes in an actual business, they likely never worked in the insurance business, those types of articles (opinions) don't amount to a hill of beans!
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Re: Insurance Costs

Unread postby Newfie » Sat 19 May 2018, 05:39:56

https://www.climateliabilitynews.org/20 ... ma-harvey/


The two hurricanes aren’t just drawing attention for their devastating financial toll. Irma and Harvey highlight a Category 5 problem slamming the insurance industry: how to manage the emerging climate-related risks for homes, businesses and governments as global warming fuels bigger and more costly catastrophes.

The insurance industry, which is responsible for managing society’s risks, has been vocal in acknowledging the threat of climate change. But two reports issued last December by a group of the world’s largest insurers also concede that they remain largely unprepared to address climate risks in the communities they serve.
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Re: Insurance Costs

Unread postby KaiserJeep » Sat 19 May 2018, 08:23:45

In fact, insurers have routinely blocked off entire areas of the country, following natural disasters. When I moved to California in 1986, I had earthquake insurance, That became impossible to get at any price in 1989 following the Loma Prieta earthquake. When legislation was passed that required the insurance companies to offer earthquake coverage again, they did so. However nowadays the rates are so high, almost nobody can afford to add earthquake coverage to their policy.
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Re: Insurance Costs

Unread postby onlooker » Sat 19 May 2018, 09:03:03

The problem with CC, is the large degree of uncertainty involved. Risk assessment is quite difficult. when the timing, frequency and severity of catastrophic events are open to great uncertainty. Such is the case in my opinion with CC
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Re: Insurance Costs

Unread postby Newfie » Sat 19 May 2018, 10:50:28

That’s when insurance works, they play on the uncertainty to get you to enroll, essentially they are making a bet that, on average, losses will be less than premiums.

What’s happening is the losses are going up faster than premiums. Then they are loosing the bet.
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Re: Insurance Costs

Unread postby KaiserJeep » Sat 19 May 2018, 13:20:52

What happened in the case of California's earthquake insurance was a new level of claims higher than ever before, making the Loma Prieta earthquake in 1989 the most expensive disaster in history, up until hurricane Sandy came along later.

Everybody was of course underinsured, since building costs have been escalating in California for decades. But the new reality that the insurance companies discovered was an extensive list of "how to maximize your insurance claim" documents found on the web, with helpful suggestions such as "don't take the first lowball offer". Some people got too greedy, not all such claims are settled today, 30 years later. I'd say the lawyers are the winners there.

The other thing that happened is that this earthquake and another in the LA area a few years later depleted the Insurance Superfund. The we had the infamous hurricanes in FL and the North Atlantic states, which put the Superfund into red ink.
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Re: Insurance Costs

Unread postby onlooker » Sat 19 May 2018, 13:33:42

This all highlights, the point that Insurance is a risky business. And customers must bear the risk if going without. But if the insurance industry is being debilitated, it will pass costs to the customers, as we see now happening in Miami. In turn consumers may resign themselves to risk, if the costs of insurance become prohibitive
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Re: Insurance Costs

Unread postby kublikhan » Sat 19 May 2018, 14:02:08

Newfie wrote:Re Buffett...

Exactly what I would say if I was over extended and wanted to reassure investors, while I quietly worked to reduce those risks and prayed for a couple of quiet years.
Buffet wasn't lying when he talked about a calm decade for florida. Florida insurance companies had years to build up reserves because of a decade of no hurricanes.

Aug 31 2016 - No hurricane has made landfall in Florida in nearly 11 years. This non-Florida hurricane landfall streak more than doubled the previous record from the late 1970s to mid 1980s. This is remarkable given the state has 1,260 miles of coastline, the longest of any state along the Gulf of Mexico or the Atlantic Ocean. According to the National Hurricane Center, 40 percent of the landfalling U.S. hurricanes from 1851 to 2010 have impacted the Florida coast. That's a total of 114 hurricanes in about 160 years. The percentage of hurricanes impacting the U.S. since 2006 is a record low for any 10-year period.

In other cases, particularly in recent seasons, some combination of dry air, wind shear (the change in wind speed and/or direction with height) or land interaction in the Caribbean has weakened or completely dissipated any tropical cyclones threatening Florida.

Chantal (2013)
Danny (2015)
Erika (2015)
Florida has been extraordinarily lucky to have at least one of these factors either weakening or steering away hurricanes consistently since late 2005.
Florida's Record-Smashing Hurricane Drought Is Due to End

Newfie wrote:What’s happening is the losses are going up faster than premiums. Then they are loosing the bet.
So Buffett's insurance companies booking a record breaking 14 straight years of profits worth more than $28 billion, snooze fest. 1 year of losses in 2017, the sky is falling.

Warren Buffett’s Berkshire Hathaway’s combination of insurance entities have recorded 14 consecutive years of underwriting profit worth more than $28 billion.

The streak ended in 2017 as three big hurricanes hit Texas, Florida and Puerto Rico and wildfires ravaged California. Buffett’s re/insurance businesses generated after-tax losses from underwriting of $2.2 billion in 2017 compared to after-tax gains of $1.4 billion in 2016 and $1.2 billion in 2015. There were no significant catastrophic events in 2015 or 2016. Writing in his annual letter to shareholders, Buffett took some comfort in knowing that the $2 billion net cost from the three hurricanes reduced Berkshire’s GAAP net worth by less than 1 percent.

Buffett is confident about Berkshire’s ability to withstand even worse catastrophes than those 2017 brought. “no company comes close to Berkshire” in being financially prepared for a $400 billion mega-cat. Buffett figures Berkshire’s share of a $400 billion loss might be $12 billion, an amount far below the annual earnings from its non-insurance activities.

For all of Berkshire Hathaway including insurance and non-insurance business, net income rose 87 percent to $44.94 billion in 2017. Operating profit, however, fell 18 percent to $14.46 billion, hurt by the insurance underwriting loss.
Berkshire’s 14-Year Insurance Win Streak Comes to an End
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Re: Insurance Costs

Unread postby Newfie » Sat 19 May 2018, 15:37:09

The point of the thread is to look at insurance companies and follow their decisions. If CC is a real threat then the insurance companies will likely be the one to first identify and quantify the risk.

What happened with Buffet is not very relevant.
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Re: Insurance Costs

Unread postby Outcast_Searcher » Mon 21 May 2018, 13:23:46

Newfie wrote:Re Buffett...

Exactly what I would say if I was over extended and wanted to reassure investors, while I quietly worked to reduce those risks and prayed for a couple of quiet years.

Buffett has not been at all like most CEO's. He tends to call them like he sees them, and frankly admit it when he screws up.

For example, he openly admitted after 9-11 that Berkshire Hathaway (which he runs and does a ton of insurance and re-insurance through) had not come close to properly factoring in the risk for significant terrorist damage (i.e. for a dirty bomb, etc) and that they'd be fixing that. He shouldered all the blame for that, even though there must be hundreds of folks in risk assessment in the various insurance companies Berkshire owns who should have at least been thinking about that.

Buffett is very much data based. You can see it in his annual letter to shareholders from Berkshire. For one example, instead of bragging about short term results in a good year with low insurance claims, he's more likely to remind shareholders that the bad years can be really nasty, and not to plan on a long run of luck, re claim intensity.

Notice he's not saying hurricane claimst can't change or they won't change -- only that it hasn't changed much overall, yet.

Disclosure: I've followed Buffett and Berkshire Hathaway on and off for a couple of decades. I've held no interest in Berkshire since the 2008 mess got rolling.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Insurance Costs

Unread postby Newfie » Mon 21 May 2018, 13:26:54

OK, I’ll take that as a carefully considered opinion. Thanks.
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