The 1999 year was a completely exceptional one in France, the victim at the end of December of two major windstorms, Lothar and Martin. The total insured cost of the storms has been estimated at $7 billion, of which approximately 60% will be borne by the reinsurers. One has to go back as far as the 17th century to find the historical equivalent. Nevertheless, the cost, in terms of damage and loss of life, could have been higher had Lothar swept through the London agglomeration after Paris, rather than turning east, or if the storm had taken place on a Monday at a time when people were leaving work, instead of at 6 am on a Sunday morning just after Christmas.
Last year was also exceptional in the world as a whole. All continents, without exception, were victims of an increased frequency of natural catastrophes. Earthquakes or windstorms affected areas with concentrations both of population and industrial development - with the result that there was a substantial accumulation of insured values. For example, losses from Typhoon Bart in Japan are estimated at $3 billion, the Turkish earthquake at $2 billion and the Australian hailstorm at $980 million.
This startling frequency of natural catastrophes prompts questions about what possible changes in climate may be taking place. So far, there has been no satisfactory answer to this question, in particular due to a lack of sufficient statistical information. And even if the climate is changing, this does not explain those phenomena which are purely physical, such as earthquakes. We are, thus, in a very different situation from that of 1992, when the single event of Hurricane Andrew resulted in an almost identical loss record ($20.1 billion in 1992 compared to $19.9 billion in 1999).
To these losses must be added important industrial fire or explosion claims: the Ford steelworks in the United States at $1 billion; the Sony electronic factory in Japan at $170 million and the petrochemical refinery at Richmond, California, at $250 million. On the other hand, one could try to explain this claims pattern as an acceleration in economic growth worldwide, resulting in maximum exploitation of physical plant to the detriment of maintenance and security.
This succession of claims is all the more worrying because it occurs at a time when the premiums charged by (re)insurance companies are under pressure as a result of strong competition and worldwide overcapacity, for natural catastrophes as well as for major industrial risks. The Lothar and Martin claims did not affect the level of rates for 2000 because the two big storms did not occur until the end of 1999.
The technical result of French reinsurers naturally reflects this situation. However, it should be stressed that they have been able to absorb these events; their net result, although materially down, remained positive (nearly FrF 1 billion against FrF 2.8 billion in 1998). Despite the problems, since 1991 French reinsurers have consistently reinforced their technical reserves and increased their turnover. Last year, net premiums rose to FrF 41.4 billion, which is an increase of 18% compared to the previous year - largely as a result of exchange rates.
In total, despite the exceptional claims, the solvency of French reinsurers remains strong and stable (nearly 80% of net premiums). By contrast, several other participants in the French market who have been in difficulty have ceased their activities.
Various distortions continue to characterise the global reinsurance market:
Thus, the trend toward concentration has become even more accentuated. Insurers and brokers continue their race for global presence. The effect of this concentration is that reinsurers themselves are obliged to grow through the absorption of some of their competitors. This is the reason for the many mergers and acquisitions that we have noted over the last dozen years in our profession.
Risks are becoming more and more sophisticated, and smaller or medium sized reinsurers are not always sufficiently well armed to meet the ever more complex needs of their clients. This is why the French reinsurers have multiplied their initiatives with the launch of new products and the conquest of new markets. They follow attentively the new techniques of financial reinsurance or alternative risk transfer (ART), drawing from the experience of the US where they often have a subsidiary and from which they now draw an important part of their business. It is significant that the business of French reinsurers comes largely from North and South America (46% of their portfolio) while Europe, which represented 44% in 1998, is now down to 39%.
To conclude, although the French insurance market only represents 5% of the world market, French reinsurers write around 10% of the global premiums of reinsurance ceded. This situation is even more remarkable when you consider that French reinsurers suffer from an unfavourable fiscal regime compared to foreign reinsurers. The Association des Réassureurs Française (ARF) wants to see this handicap lifted. We believe the same rules of play should apply throughout the world and propose that France adopt methods of supervision of reinsurance by agreement, identical to those which apply in other countries. This regulation will, of course, be harmonised within the framework of the European Union.