U.S. thunderstorm insured loss hits Q1 record at $5.7bn: Aon Benfield

The latest data from Impact Forecasting shows that U.S. severe thunderstorms and convective weather are estimated to have caused insurance and reinsurance markets at least $5.7 billion of losses, making the first-quarter of 2017 the most costly Q1 on record for this peril.

Insurance and reinsurance industry losses due to severe thunderstorms and the large hail, damaging winds and tornadoes they cause, have been on the rise throughout the year, with a number of serious outbreaks causing billions in economic damages.

As a result the toll for re/insurers has been on the rise as well, but now the latest data from Impact Forecasting, the catastrophe risk modelling and analytics arm of reinsurance broker Aon Benfield, shows that the first-quarter of 2017 has been particularly heavy for re/insurers, in terms of losses from severe thunderstorms and convective weather impacts.

Steve Bowen, Impact Forecasting director and meteorologist, shared the following chart which shows that the first-quarter of 2017 has been the most impactful on record for insurance and reinsurance losses from the severe thunderstorm peril and that insured losses are running significantly above the long-term average.

It’s the second year in succession that insurance and reinsurance markets have faced a heavy toll from severe thunderstorm related losses, which in turn means impacts to ILS funds and investors, as severe convective storm risk is a typical peril of many catastrophe reinsurance arrangements that ILS investments are linked to.

Beyond the first-quarter the expensive run-rate of losses from severe thunderstorms has continued, with some further outbreaks in the last fortnight.

As we wrote earlier, the impact of severe thunderstorm losses could be felt by catastrophe bond investors as well, with one transaction facing an erosion of aggregate deductibles beneath a private cat bond attachment point making the deal increasingly risky as the sponsor deals with spring storm losses.

The impact of these losses has definitely been felt by investors in some ILS funds that largely participate in collateralized reinsurance transactions. ILS funds with higher return targets and that invest in U.S. nationwide property catastrophe reinsurance arrangements will be some of the first to see actual impacts to their returns due to this record level of thunderstorm losses.

However even the lower volatility and return ILS funds could find that the first-quarters severe thunderstorm losses are beginning to erode retentions for cedents they back, as the aggregation of these losses starts to eat into buffers beneath reinsurance layers.

Also read: U.S. severe weather losses $2bn+ in March, cyclone Debbie US$310m+: Aon.

Join Artemis in Singapore on July 13th 2017 for ILS Asia