Catastrophe losses could be 10-20% below average for H1 2021: RBC

A relatively benign second quarter for global catastrophe losses will have been some good news for insurance, reinsurance and insurance-linked securities (ILS) interests after a challenging few years of losses.

Analysts at RBC Capital Markets estimate that natural catastrophe losses were some 30-50% below average for the second-quarter of 2021, which they now believe has taken the year-to-date catastrophe loss burden below average for the first-half of the year.

Because of this, the analysts believe that the major reinsurance firms they track in Europe will not breach their catastrophe loss budgets for Q2, as losses fall within expectations.

This is positive for the ILS market as well, as losses through collateralised reinsurance, quota shares and reinsurance sidecars will all have been lower thanks to the reduced burden on the cedent base.

The RBC Capital Markets analysts believe that Q2 catastrophe losses will be in the US $10 billion to US $14 billion range.

Year-to-date, for the first-half of 2021, they now believe catastrophe losses will be around the US $30 billion mark, slightly below average despite the above-average start to the year in Q1.

Underwriting results are going to be vastly improved when the reinsurance cohort report their Q2 results over the coming weeks, the analysts believe.

However, man-made and non-catastrophe losses could be higher than anticipated, with a range of loss events including the Ever Given Suez canal blockage, an oil spill from a sunken ship in Sri Lanka, a fire in an oil refinery in Indonesia, a chemical plant explosion in Illinois and a fire, an oil spill at an offshore platform in China, political violence in Colombia and the Colonial Pipeline cyber event, all potential drivers of financial impact.

At the same time, pricing has of course been on the rise, elevating the profit potential in reinsurance portfolios. So we could see some much stronger results, with a positive read across for ILS fund strategies as well.

One wild-card could be the fact a number of US domestic primary insurers have been experiencing rising losses due to severe weather over recent months.

Some of these could experience attritional losses that may drive some reinsurance recoveries as well, but would only be expected to have a limited effect on a handful of ILS fund strategies, we’d imagine.

Overall, the second-quarter around the globe has been a more positive one, in terms of loss activity.

With COVID-19 losses also expected to be lighter than the prior year, it’s going to be a chance for reinsurers to deliver shareholder returns, while some ILS funds will also deliver higher half-year returns too.