Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

$15 billion of U.S. & Canada insured losses in first-half of 2016: PCS


PCS designated 27 catastrophe events in the first-half of 2016 across the U.S. and Canada amounting to insured losses of $15 billion, including the devastating wildfires in Alberta, Canada and a series of intense hailstorms and flooding in Texas.

In order for PCS to designate an event a catastrophe it must incur an industry loss of at least $25 million and impact a substantial number of insurers and insureds, says the firm.

In the first six months of 2016 PCS has designated 27 catastrophe events across the U.S. and Canada, totalling $15 billion in insurance industry losses, although reinsurance activity remains on 11 of these events, emphasising the need for preparedness and structural discipline, says PCS

“The nature of North American catastrophe losses this year speaks to the importance of preparedness and structural discipline. As to the former, we’re watching the largest Canadian catastrophe event in market history unfold – as well as the largest wildfire event in North America. It’s likely to shape discussions about Canadian risk and wildfire risk for years to come,” said Tom Johansmeyer, Assistant Vice President (AVP), PCS Strategy and Development.

The Alberta, Canada wildfires that took place earlier in 2016 is set to be the costliest single peril event in Canada’s history, and while the final loss estimate is yet to be announced, PCS Canada expects the event to produce an insurance industry loss of C$4.6 billion.

“The Fort McMurray wildfire was clearly the most impactful event of the year. The preliminary PCS Canada estimate for the event is C$4.6 billion, with the next estimate expected in early August.

“While the fire represents roughly a third of the North American insured catastrophe loss total year to date and was the largest single event of the year, it was still smaller than the aggregate losses sustained in Texas,” said Director of Operations at PCS, Ted Gregory.

A series of intense hailstorms and resulting flooding in Texas through the first-half of 2016 underlined the potential severity of aggregate losses, with multiple events taking place days and weeks apart, each causing extensive damage and contributing to an increased insurance and reinsurance industry loss, which PCS says accounts for roughly 60% of H1 2016 U.S. losses.

“Although the resurvey remains open, 60 percent of first-half U.S. losses came from the Texas hailstorms that occurred this year – more than $6 billion in insured losses,” said Gregory.

That’s a significant number, and highlights the need for those that operate in the region to properly understand the potential impact of a series of adverse weather events, particularly for insurance-linked securities (ILS) players that are increasingly exposed to aggregate losses through private ILS and collateralized reinsurance deals.

“When it comes to structural discipline, the activity in Texas could make the market see hail risk in a new way. The aggregate loss is substantial, and the underlying events are large within the context of hail.  This shows the importance of clear, independent catastrophe event definition in the ILS space,” said Johansmeyer.

With the ILS market still being in its infancy, events such as the Canada wildfires and the Texas hailstorms while damaging, provide ILS players with experience in dealing with both a large single event, and an aggregation of losses, which should help the market better understand potential exposures and risks within the property catastrophe reinsurance space.

The growth of the ILS space and maturity and willingness of its investor base to assume insurance and reinsurance-linked risks is growing all the time, and as a result ILS funds and managers will become increasingly vulnerable to losses from large events, and also aggregate losses, as they look to participate in a broader range of transactions and peril regions.

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