Catastrophe reinsurers entered 2002 unsure of where the market was heading, with a prolonged renewal season and plenty of uncertainty over the persistence of capacity characterising the beginning of the year. The many start-ups on Bermuda in the last few months of 2001 and over the course of 2002 did not, however, try to muscle too far in on the well-established property catastrophe market, which had sprung up on the island after hurricane Andrew, in 1993. With 2001's largest loss by far - and the largest recorded to date - being the terrorist attacks in the US on September 11, terrorism exclusions were implemented across the board. The impact of the World Trade Center loss continued to grow over the course of 2002, with XL Capital increasing its WTC-related reserves by around $200m mid-year.
According to Swiss Re's sigma report on catastrophes in 2002, the year turned out to be fairly benign for the re/insurance sector. Over the course of the year, man-made and natural catastrophes across the world resulted in $13.5bn in insured losses. The largest single insured loss was the European floods in August, which sigma assessed cost the industry $2.5bn. Much of this fell on the shoulders of the European market, though PartnerRe issued a $120m loss estimate for the floods.
Of the 344 events recorded by sigma in 2002, 130 were natural catastrophes, though these took the top 11 places as far as costs to the industry are concerned, accounting for $8.7bn in insured losses. In total, natural catastrophes cost the industry $11.4bn over the course of the year, and sigma warned that the re/insurance sector should be prepared for an increase in the number of extreme weather events as a result of climate change. In 2002, storm-related losses cost $6.7bn, with flood-related losses reaching $4.1bn, the highest ever recorded, according to sigma. Even so, sigma noted that insured losses in 2002 were comparatively low, and economic losses for the year were below the annual average for the 1990-2001 period.
Bermuda-based property catastrophe writers saw 2002 help cushion the blow of the 2001 losses. Each of the major writers recorded a massive increase in premium income, helped by strengthening rates and tighter terms and conditions, and a simultaneous reduction in combined ratios, which had taken a hammering from WTC-related losses in 2001. All recorded a concomitant increase in net income, though the segmental analysis for XL Re undertaken by XL Capital showed the reinsurance business to continue posting a net loss, albeit $770.2m lower than the 2001 stated amount.
Trenwick's increasingly shaky existence over the course of 2002 led it to dispose of the renewal rights to its LaSalle Re property catastrophe business, acquired by Endurance in May 2002.
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