Pricing in disaster

The insurance industry will play a pivotal role in helping Japan get back on its feet. Richard Dunbar, investment director - UK equities at SWIP, analyses the current state of the sector and what this disaster will mean for its future.

It has been nearly six years since policy pricing has worked in favour of the global insurance market. In the wake of Hurricane Katrina, which was responsible for around $55bn of insured losses, premiums were forced up by capital destruction in the industry. Those in a position to do so raised capital, did their sums and assured shareholders the present value of their current losses would be less than the present value of future price rises. So prices rose, capital was raised and deployed, and shareholders earned a tidy sum. But the age-old cycle continued to turn; as a result of the hig...