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08

Reinsurers and governments 'must work to boost disaster resilience'

Open-access content Thursday 28th August 2014 — updated 8.17am, Tuesday 5th May 2020

Governments in developing countries have been urged to work with the reinsurance sector to develop plans to deal with the economic instability caused by natural catastrophes.

Credit rating agency Standard and Poor's said that it was likely that uninsured loses from natural catastrophes would rise in the years ahead as the growth of the middle class in many countries was outpacing insurance provision. Such a trend increases the level of uninsured looses a country must absorb, which could hit potential economic growth.

The ratings agency also called on reinsurers to play a role in protecting governments and their citizens from financial shocks linked with natural catastrophes by improving the relevance of the insurance market.

In its commentary note, entitled Working with governments to increase disaster resilience can open new doors for reinsurers, S&P said: 'By building disaster resilience before an event, governments can benefit from their ability to devise solutions that will help protect economic stability and provide timely relief, recovery and reconstruction funding.

'In some cases, extreme events in large developed and developing markets could not only derail the growth of that economy, but could also cause a ripple effect, affecting the global economy.

'Ultimately, developing a market for these products should lead to a stronger insurance market and increased insurances penetrations (measured as insurance premium as a percentage of gross domestic product.'

S&P also noted in an earlier report this year on climate change and its impact on sovereign ratings that emerging economies were more vulnerable to extreme weather events.
All of the top 20 nations most vulnerable to climate change are emerging markets, and the average insurance penetration, based on insurance premiums paid as a percentage of gross domestic product, is 0.9%, is less than half of the global average (2.1%).

'In our view, government-backed insurance solutions, supported by the global reinsurance industry, could provide some protection and stability to government budgets, mitigating the potential for instability and growth retardation,' said S&P.

This article appeared in our August 2014 issue of The Actuary.
Click here to view this issue
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