Impact of worldwide natural catastrophes on local insurance companies

Abstract

The main aim of this study was to find out the impact of natural catastrophes on local insurance companies. The impact will come out from underwriting business in Malta and underwriting international business. The other effect will occur from reinsurance when insurers do not find availability of reinsurance protection and/or reinsurance costs. The last effect on local insurance companies arises from the investment element where the portfolio of the insurers will be affected after a natural catastrophe. To carry out my study, a set of five interviews were conducted with the local insurance companies to identify the effect on them after a natural catastrophe. Results were compared to identify different effects and different opinions from one company to another. The general findings, from the underwriting point of view shows that insurers get the biggest impact when underwriting local business and have to pay losses from storms, tempests and floods. Although, Earthquakes are not perceived as high frequent risks, their severity could create big losses for the companies. From the reinsurance point of view, insurers agreed that reinsurance prices could change because after a big natural catastrophe they will end up paying substantial amounts to the claimants, so they increase the price on insurers to recover from such losses. On the other hand, the reinsurance capacity doesn't really affect the local insurance companies. The impact from investment will occur only if the local companies have investments with foreign companies that are hit by a natural catastrophe, otherwise the affect is minimal. In fact, some insurers stated that they don't find a correlation between their investments and natural catastrophes. Although, such big events are quite rare to happen in Malta, the local insurance companies do have protection against such infrequent occurrences which would create huge losses if one such event were to occur.