Life & Personal Accident Catastrophe Reinsurance Market Update February 2011




February 2011

In general, the Life & Personal Accident (Life/PA) catastrophe reinsurance market has experienced excellent underwriting results over the first decade of the new millennium. The last major market catastrophe event to impact this market was the terrorism attack on the United States of September 11, 2001 (9/11). The impact of this event on the Life/PA catastrophe reinsurance market will not soon be forgotten.

Due to the fear of another 9/11 event (or worse); the risk of earthquake; not to mention the potential loss from a major aviation event; and other natural perils, responsible insurance companies who write Life/PA insurance products will often seek to protect themselves against financial ruin or an extreme financial setback that an unforeseen event such as a terrorism attack, earthquake, or other natural peril may trigger.

The effect of 9/11 on the Life/PA catastrophe reinsurance market was significant. The 9/11 event resulted in rate increases at never before seen levels, sometimes up to 20 or 25 times expiring rates. Because the new rate levels were so much higher than expiring rates, after 9/11 many insurers delayed purchasing covers or decided not to buy at all, ironically at the same time (immediately following the 9/11 attacks) the perceived exposure from the terrorism risk was at an all time high.

Why should Life/PA insurers buy a catastrophe cover?

Firstly, the impact of a catastrophic loss on insurance companies’ balance sheets could not only lead to poor immediate financial results but may cause insolvency. Secondly, the catastrophic risk which is characterized by very large and infrequent occurrences is growing each year. How is the catastrophic growing? For example, the terrorism risk has not abated since 9/11 as more and more groups seek to use this ugly tool to champion their cause. Also, with population growth, there are increasing population densities in regions exposed to natural perils such as earthquake. Finally, population growth and inexpensive airfares has resulted in growth in air travel. The good news for insurers is that despite the increasing risk, rates have come down steadily since 9/11 and are currently at a post 9/11 low.

The 5 Worst Terrorism Events Recorded
2001 9/11 Attacks US


2007 Yazidi communities bombings Iraq


1978 Cinema Rex Fire Iran


2004 Beslan School Siege Russia


1985 Air India Flight 182 Canada/India


Update on the 2010 Renewal season

From the perspective of Sutton Reinsurance Underwriters (SRU), it appears that, although rates have continued to drop throughout 2010, rate levels have begun to flatten towards the end of this past renewal period.

Also, it is likely that many Life/PA catastrophe reinsurers may have reached similar conclusions: that is, the catastrophic risk is growing. This factor coupled with rates currently at post 9/11 lows indicates that market rates may have indeed reached a floor level. This prediction is further supported by the fact that the economic crisis of 2008 has squeezed capital availability. With these factors in mind SRU predicts that rates will remain flat in the Life/PA catastrophe market during 2011.

SRU specializes in the reinsurance of Life portfolio and Personal Accident (PA) portfolio catastrophe protections. As a long -term participant in this market, SRU is an expert at assessing and providing appropriate reinsurance coverage for these exposures.

SRU is engaged solely in the business of Accident Reinsurance underwriting management. With over 55 years of underwriting experience SRU is capable of assisting insurance companies in structuring reinsurance protections that are suitable to its partners’ needs in this rapidly changing and often unstable economic environment.

About Sutton Reinsurance Underwriters, Ltd

Originally established in 1986, Sutton Reinsurance Underwriters Ltd. is a privately owned Canadian Company engaged solely in the business of specialized reinsurance underwriting management. Sutton Reinsurance Underwriters Ltd. provides local expertise and service to insurers and intermediaries in North America. Through specialized reinsurance agreements, we represent several A.M. Best “A” or better rated reinsurance companies.

For more information please contact:

John Iacono, 416.307.5632, or

David Silva, 416.307.5620,