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up to about USD3 billion. However with 10% growth in both underlying values and insurance penetration per annum this figure could reach USD10 billion if such an event occurred from 2016 onwards. Similar losses could result from a repeat of the 1679 Sanhe- Pinggu magnitude 8 event near Beijing or the 1668 magnitude 8.5 Tancheng event in Shandong.


• Seoul in South Korea experienced damaging earthquakes in AD 89, 1385 and 1518 with magnitudes apparently ranging from 6.5 to 7.5 (Chiu & Kim, 2004). Any major earthquake around magnitude 7 affecting Seoul today would cause a major, perhaps Supercat-sized, insured loss.


Dr. Will Gardner, head of Aon Benfield


Analytics Asia Pacific, said: “The first step is for insurers and regulators, particularly in China and South Korea, to recognise the possibility of Supercat-sized earthquake losses and take action to ensure adequate catastrophe reinsurance protection.”


Dr. Nigel Winspear, senior director at Aon Benfield Analytics, added: “Natural perils in Asia do not appear to be increasing in frequency or severity, however market conditions are changing with increasing insurance penetration and higher property values reflecting ongoing economic growth. Property insurance penetration in Asia is generally low and weakest in residential lines but often high in commercial and industrial lines. Some insurers opt to purchase as little catastrophe reinsurance protection as possible to maximise their retained premium.”


SURPLUS LINES DRAINED, BUT


NOT DRY An A.M. Best special report outlines effects


of the soft market and economic conditions impacting the surplus lines market.


Breaking a two-decade run of fairly consistent


gains, the surplus lines industry’s direct premiums written (DPW) declined for a third consecutive year in 2009. At 4.1%, the decline was still


8 | INTELLIGENT INSURER | November 2010


Intelligence


better than the previous year’s 6.2% reversal, but higher than the overall property/casualty (P/C) industry’s 3.3% DPW fall off. Standard market carriers that compete on risks traditionally insured in the surplus lines market are still major sources of pricing pressure and profit margin compression. Recessionary economic conditions, volatile financial markets and competition from Bermuda-based carriers are added challenges for this market, according to the A.M. Best Co. special report.


Still, surplus lines specialists, particularly


the market leaders, generated considerable operating profits and returns on both revenue and surplus. The partial rebound in the underwriting performance can be credited to the margins built up before the market softened. In 2009, favorable prior-year loss reserve development also helped offset aided underwriting performance. Surplus line specialists in 2009 released a significant percentage of prior year loss reserves relative to net premiums earned, as did the P/C industry, which led to a sizable benefit on their year- end combined ratio. Nine of the top 10 U.S. surplus lines groups by DPW remained the


TARANTO TO REMAIN


EVEREST BOSS Joe Taranto has decided to reconsider his decision to retire following the resignation of Ralph E. Jones III, President and Chief Operating Officer.


Taranto will now remain as Chairman and Chief Executive Officer through to December 31, 2012. The Board of Directors of Everest Re Group confirmed they had asked Taranto to stay at the helm of the world’s 11th biggest reinsurer following Jones’s departure.


same as in 2008, and the rankings from one to eight did not change. Berkshire Hathaway Insurance was the only group to drop out of the top 10, landing in the number 13 position. Three groups experienced DPW growth: QBE Americas Group, Munich-American Holding Corporation and Endurance Specialty Group. QBE Americas Group is one of several groups that have made acquisitions to increase market share.For the sixth year in a row, the surplus lines industry recorded no financial impairments.


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