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Insurers pulling out of Caribbean

the prospect of no insurance in 1996 unless they pay huge premiums.Mr. Robert Virtue, president and CEO of the new, specialty Caribbean hotel insurer that was set up in Bermuda, CHA Insurance Company (CHAIC) Ltd.,

the prospect of no insurance in 1996 unless they pay huge premiums.

Mr. Robert Virtue, president and CEO of the new, specialty Caribbean hotel insurer that was set up in Bermuda, CHA Insurance Company (CHAIC) Ltd., said last week that many direct insurers had withdrawn from the Caribbean.

"Some (insurers) that suffered severe losses had to get out; more fortunate companies decided to pull out while there was still time,'' Mr. Virtue told the Ninth International Reinsurance Congress, which took place in Bermuda last week.

Mr. Virtue also asked: "How can our industry, with its traditional rating structure, avoid doubling premiums on hotels in this region after a severe and turbulent season such as we are currently experiencing?'' Mr. Virtue was laying the foundation for a discussion of the proliferation of alternate risk transfer (ART) products and an introduction to the CHAIC. He said that ART is the fastest growing evolution in the insurance industry, and it may bring back stable pricing to the property market after the Kobe earthquake.

"Technology will be increasingly used to assist underwriters and actuaries with their decisions, to track results, to process claims and supply statistics to evaluate risk and establish rates,'' he said.

"But technology alone is not enough. Vision is needed to imagine new ways of analysing existing markets, geographically, industry-specifically, demographically, etc.

"Since Kobe, some things have become much clearer. The biggest thing is that we are more aware of the needs of insureds as homogeneous groups.

"We are also unfortunately increasingly confronted with the fragility of our industry's current structure. The need to re-engineer many of the traditional concepts of our industry, using the scientific information now available to us, becomes increasingly urgent.'' Mr. Virtue was speaking to participants of a conference at a time when industry firms were still reeling from property catastrophe losses. With more than two months left, 1995 may well be remembered as one of the most catastrophic in history for insurance and reinsurance industries.

Tremendous turmoil was caused for brokers, loss adjusters, underwriters and lawyers, together with overwhelming human trauma. The repeated onslaught of catastrophes, with increasing insured values destroyed, began less than three weeks into the year, with the earthquake in Japan.

It has resulted in an estimated loss in excess of $100 billion, after a square kilometre of Western Kobe was totally destroyed by fire.

Mr. Virtue said the Port of Kobe was virtually paralysed by direct and indirect losses, which dwarf those seen in any earlier quake.

About 150,000 buildings were destroyed, 5,492 deaths were reported, 28,000 injured, 7,000 homes destroyed and 300,000 people rendered homeless.

Mr. Virtue said: "The insurance industry is based on the spread of risk so that many will share in the misfortunes of a few. However, at the time this concept was formulated, when Lloyd's of London was founded, no one could imagine losses in the billions of dollars.'' Back in 1992, many insurance and reinsurance companies found themselves unable to pay losses resulting from disasters, especially Hurricane Andrew. Over the last three years alone, the rapid increase in damage incurred has not been matched by a proportional increase in premiums or rates.

Mr. Virtue said that it has undercut the pinions and foundations, and therefore the stability, of the industry. The only three ways to increase the premium base include significantly raising rates, increasing the number of insured, or both. None have yet occurred.

After Hurricane Andrew, capacity decreased, rates increased somewhat, insurance companies folded, Bermuda became a more attractive market and long-standing ideas about insurance began to change.

After Kobe, brokers, buyers, underwriters and reinsurers had to find new or unconventional ways to protect financial assets. A study led to the drawing of the Caribbean into six distinct property zones, after previously being considered as one.

The results of the study, in fact, led six major companies to invest in a new facility to deal just with property in the hotel industry in the Caribbean and in Bermuda. Such strong financial institutions included Zurich's Centre Re, AllState, Aon, Western General, Chartwell Re and Fidelity International.

From a business perspective, it would mean a broad-based insurance policy could be offered that had stable, multi-year pricing, based upon a region's individual experience. The new company could continue business in a territory even after a major windstorm or earthquake.

Mr. Virtue pointed out:"The innovative features of this programme included: Specific policy wording for hoteliers, an insurance company whose ownership included policyholders who have a say in the company's destiny, the use of sophisticated computer modelling to centralise underwriting information, and the participation of strong financial institutions.''