A growing market for catastrophe bonds has placed the insurance industry to handle a natural disaster bigger than Hurricane Katrina, says one industry expert.
“The insurance and the reinsurance industry are at very strong levels of solvency, there is lots of capital in the business,” Michael Kerner, the head of
Zurich Insurance’s general insurance division, told reporters. “The industry can handle a $100 billion event.”
According to data from reinsurer
Swiss Re, hurricane Katrina was the costliest natural disaster, racking up $80 billion in damages for the insurance industry. Zurich accounted for $600 million after tax and reinsurance for the 2005 hurricane.
The natural catastrophe bond market issued record volumes during the second quarter, according to a Willis Capital Markets & Advisory report in July, with investors attracted to the sector in search of higher returns as interest rates remain at rock-bottom levels.
"We do need to access all forms of capital to be able to provide the appropriate risk transfer solutions,” Kerner told
Reuters. “In this context, some of this alternative capital is really a good thing, because it has expanded the capacity of the insurance industry to be able to handle these bigger events.”
The first half of this year has been relatively quiet, according to
Munich Re, with natural disasters only causing $42 billion worldwide – well below the 10-year average.
The first half of 2014, however, has been relatively calm, with floods, storms and other natural disasters causing around $42 billion in damage worldwide, well below the prior-year period and a 10-year average, German reinsurer Munich Re said in July.
