How can I benefit from Hurricane Harvey

Business with the disaster - if it crashes, reinsurers benefit

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What sounds cynical corresponds to the laws of the market. Because a hurricane like «Irma» also sweeps away low premiums.

Author: Charlotte Jacquemart

the essentials in brief

  • The cyclone "Irma" caused billions in damages in the USA. A large part of this is borne by reinsurance.
  • It's good for them when it crashes: this is the only way they can raise premiums.
  • Others suffer from the storm damage: for example Swiss pension funds. You pay with «Irma».

Reinsurers live from the fact that they take risks from primary insurers. For this they get bonuses. But these have been in the basement for a few years. This is because there is little damage, but there is a lot of insurance coverage.

As cynical as it may sound, it is good for reinsurers when there is a crash from time to time and high losses have to be paid for. This is the only way to destroy insurance capacity and raise premiums again.

Martin Bertogg, Head of Natural Hazards at Swiss Re, knows what it looks like at the moment: “That depends a lot on how much capacity is destroyed. At the moment the market is very liquid. There would have to be enormously big events that the capacity is reduced to such an extent that the prices really rise massively. "

‹Irma› is still running. In the case of Hurricane Harvey, it is very difficult to assess what that will mean for the insurance industry.
Author: Martin BertoggHead of Natural Hazards at Swiss Re

Bertogg says one of the reasons for the falling premiums in recent times is that the risks can be calculated more and more precisely thanks to better models. The premiums would no longer be as violent as they were a few years ago. Experts are currently counting on “Irma” with insured damage of up to 65 billion dollars.

However, Bertogg warns against drawing too early conclusions: «'Irma' is still going on. In the case of Hurricane Harvey, it is very difficult to assess what that will mean for the insurance industry. "

The catastrophe business beckons

For another industry, however, the pension funds, the consequences of “Irma” are clear: you have to pay. In recent years, pension funds have increasingly begun to take on risks from natural disasters, because hurricanes and earthquakes are also completely independent of the financial markets and the returns are good. This makes the portfolios of the pension funds more stable.

Companies such as Zurich-based Twelve Capital broker such insurance transactions to pension funds. Urs Ramseier, head of Twelve Capital, tries to estimate how severely pension funds are affected by “Irma”: “Based on the latest developments, we are assuming that the losses for the pension funds will be rather low. But you actually take the risk of having to accept losses in your portfolios in the event of major events. "

No return without risk

Pension funds don't have to worry about that, says Ramseier: “It could have turned out much worse. In return, the pension funds get a return and, as is well known, there is no risk-free return. "

Incidentally, Swiss pension funds do not only pay in the case of “Irma”. Last week's earthquake in Mexico also led to losses in some portfolios. The earthquake was insured with a so-called catastrophe bond. Ramseier knows that pension funds were also invested in these.

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  • Comment from Werner Christmann (chrischi1)
    The insurance companies always benefit. For me the industry that comes before the banksters.
    Agree agree to the comment
  • Comment from Rolf Künzi (undefined)
    The casino and the insurance companies always win in the long run, everything calculated for a long time. The law of large numbers leaves nothing to chance. An incompetent boss pulls the strings and wants too much. Then the hour strikes for Warend Buffets and Co. they leave nothing to chance, but rather to their better market position.
    Agree agree to the comment

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