Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Catastrophe frequency leads buyers to rethink reinsurance: Willis Re


Reinsurance buyers are rethinking their strategies and retention levels in the wake of two years that drove over $200 billion of losses through the sector, when the frequency of smaller to mid-sized losses has become a talking point, according to Willis Re.

“The frequency of catastrophe losses over the last two years continues to result in many primary insurers rethinking their strategy around retention levels. Several sustained storms may also lead to reconsideration of hours clauses by cedants and reinsurers. On the back of this unusual catastrophe experience, we expect to see further reinsurance program adjustments as the year progresses,” explained Vaughn Jensen, Executive Vice President and Head of North America Catastrophe Analytics at Willis Re.

As we explained recently, the insurance, reinsurance and insurance-linked securities (ILS) market has suffered $200 billion of losses across a period of roughly 18 months, with the mix of larger losses that experienced loss creep and frequent smaller to mid-sized catastrophe events driving impacts and issues through the marketplace, on alternative and traditional sides.

Willis Re highlights how these smaller to mid-sized losses have aggregated to create issues for some, but notes that the last two years of catastrophes is also driving re/insurers to rethink their protection buying.

The broker estimates that insurance and reinsurance market losses from major natural catastrophes in 2018 amounted to roughly $71.5 billion, which is slightly more than the firm’s annual average figure across the last eight years.

This compares to Swiss Re’s estimate for $79 billion of losses, across nat cat and man-made disasters, and Munich Re’s estimate of $80 billion of industry-wide catastrophe loss impacts.

With no single really major catastrophe loss in 2018, the total consists of numerous mid-sized and smaller industry loss events, which exacerbated issues for some in the ILS sector.

Karl Jones, Managing Director and Head of International Catastrophe Analytics at Willis Re, commented on what the broker says was an unusual year, “The industry experienced a large number of mid-sized natural catastrophes. Three events – the Camp Fire, Typhoon Jebi, and Hurricane Michael – have all reached at least the high single digit billions in insured losses, but only the Camp Fire seems likely to exceed the level of $10 billion. However, a large number of smaller, billion-dollar losses, principally storms, has added up to make 2018 a costly catastrophe year. With the exception of the major California wildfires, these losses are well within modelled expectations.”

While individually the losses are mostly within modelled expectations, it is their aggregation that perhaps wasn’t, at least not on the heels of a year like 2017.

Jensen explained how this impacted some players, “The re/insurance industry has now absorbed more than $200 billion worth of natural catastrophe losses over a two-year period. It has been a significant test for both traditional and ILS capacity but overall the sector’s capitalisation remains strong.

“The distribution of smaller catastrophes in 2018 has given retrocessionaires and excess of loss reinsurers some breathing spaces, with the clear exception of aggregate covers as well as accounts with a concentration of exposure in California.”

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