Insurers Game the “Biggest Loss Ever”
On January 31 members of London’s insurance industry released the results of an exercise to measure their preparedness for what they project as the largest insurance loss in history.
One of the scenarios drawn up by participants in this war game includes a cyberattack that causes 93 million in the U.S. to lose power, a 16 percent decline in the stock market, and a Category 5 hurricane that damages nearly 2 million buildings in the Miami metropolitan area—all occurring within a period of two weeks and resulting in $200 billion in insured losses.
The exercise was conducted over a two-week period last year as the London market attempted to measure how well the industry was prepared for what would be the largest loss ever. Robert Childs, chairman of Hiscox Ltd., one of the groups that organized the exercise, said that he had long been concerned about being prepared and thought the preparedness should be tested. Childs said that the last event that he sees as significantly affecting the market was the terrorist attacks of September 2011.
The voluntary exercise was undertaken by 17 insurers and brokers, including Hiscox, Aon PLC, RSA Insurance Group PLC and Lloyd’s of London. The results of the exercise indicate that the industry is well prepared financially for such catastrophes, having sufficient capital and liquidity, but the test also indicated that some assumptions that have long been held about major losses are no longer operative, including the assumption that insurers could absorb large losses with significant price increases. Report in the Financial Times.