Aggregate reinsurance pricing & supply set for examination: AM Best

As participants in the insurance, reinsurance and insurance-linked securities (ILS) industry grapple to understand the extent of their possible exposure to the severe convective storms and tornadoes of recent days, AM Best has warned that loss events like this will drive a re-examination of aggregate reinsurance pricing and supply.

In discussing the tornado outbreak, AM Best said that it expects the losses from it to be an earnings event for those exposed, rather than a capital event.

That aligns with the first industry loss estimate from Karen Clark & Company, which pegged the total insured loss at around the $3 billion mark, so far from an industry moving catastrophe loss.

But, despite its relatively low overall quantum from an industry-wide perspective, the tornadoes serve to underscore the issues of secondary and less well-modelled peril loss events and show that the industry remains open to nasty surprises from these kinds of losses.

As we reported yesterday, Swiss Re has highlighted that secondary peril losses accounted for more than half of the 2021 nat cat industry loss total.

So these kinds of loss events are in particular focus right now and the recent tornadoes are only going to heighten underwriters resolve to get paid adequately for assuming them, or to restrict their coverage to ensure secondary peril losses are capped, better managed, or even excluded.

AM Best noted that the tornadoes will, “Dampen underwriting results for property/casualty insurers that have already experienced severe weather-related losses in 2021.”

That could also drive some need for additional reinsurance perhaps, where carriers have a risk concentration to the region affected.

The rating agency said that, “The growing frequency of tornadoes and such events will lead to insurers re-examining their reinsurance protection and to reinsurers becoming more cautious as they look at demand and risk, which may be reflected through pricing, limits, deductibles, and other underwriting tools.”

Adding that in particular, tornado and other severe weather events are likely to drive a “re-examination of pricing and supply of aggregate reinsurance protection.”

Of course, this has been ongoing for some years now, as aggregate reinsurance and aggregate retrocession has been impacted with losses in consecutive years of late.

In fact, just in recent days we’ve been documenting the fact the catastrophe bond market appears to have reached a floor on pricing, in terms of investor appetite for returns, with a number of new cat bond deals pricing up and some issues shrinking, which is a very different situation to recent months of cat bond issuance.

But this tornado and storm outbreak, coming in the midst of an already delayed and challenging renewal season, could be the final straw for some reinsurance carriers, driving a more concerted look at exposure and terms of coverage.

Also read:

– Significant tornado outbreak damages multiple U.S. states.

– Weekend tornado & storm losses to run into billions of dollars.

– Tornadoes to affect some aggregate cat bonds: Plenum.

– Tornado impact to ILS investors cannot be ruled out: Twelve Capital.

– US tornado toll likened to $7bn industry loss from 2020 Derecho.

– Tornadoes a multi-billion loss, a “limited portion” for reinsurance: Aon.

– US tornado & storm outbreak estimated a $3bn insured loss by KCC.

– Properties with reconstruction value of $3.7bn exposed to tornadoes: CoreLogic.

– Survey suggests $2.5bn – $5bn tornado industry loss, but 53% say $5bn+.