First-half 2015 catastrophe insured losses below-average again: Aon Benfield

Despite severe winter weather and intense convective storm activity in the U.S. during the first six months of 2015, insurance industry losses from natural disasters and catastrophe events were again below the ten-year (2005-2014) average, according to reinsurer Aon Benfield.

The continued benign nature of the global catastrophe, weather and natural disaster loss environment has been a major cause of the build up of excess capital in the reinsurance sector and the continued below-average industry loss totals will ensure that trend continues.

In its latest mid-year Reinsurance Market Outlook report, the reinsurance broking arm of Aon plc., Aon Benfield, examines the impact weather-related catastrophes have had on the global reinsurance sector.

“Despite an eventful six months of 2015, the number of events did not translate into substantial insurance losses for the industry. Overall first-half natural disaster losses were below normal from the recent ten-year average for the third consecutive year,” explained Aon Benfield.

The report notes that insurance and reinsurance industry losses from the first six months of 2015 neared $14 billion, some 58% below the recent average of $33 billion.

First-half insurance industry losses from natural disasters, weather and catastrophe events - Source: Aon Benfield

The majority of losses came from the U.S., where prolonged, severe winter weather brought heavy snowfall and harsh temperatures to roughly 20 states, and widespread convective storm activity towards the end of May, making up $9 billion, or 64% of half-year global insurance losses.

In fact, according to Aon Benfield’s study the costliest event of the first two quarters of the year was the heavy snowfall in the U.S., accounting for roughly $1.8 billion of total insured industry losses.

The only other stand-alone insured loss event to surpass the one billion mark was also in the U.S., witnessed during the record rainfall that impacted Texas and Oklahoma and exacerbated by convective storm damage in May, says the report.

Despite this, Aon Benfield notes “that U.S. insured losses in 2015 were 55% less than what was sustained in 1H 2014 ($20 billion) and 61% less than what was registered in 1H 2013 ($23 billion).”

A low level of insured industry losses, particularly when coupled with high economic losses typically signals that events occurred in underinsured, developing regions of the globe, like parts of Asia.

But the fact that 64% of total half-year insured losses came from the states and other significant losses came from developed regions of Europe, signals that during Q1 and Q2 of 2015 this wasn’t case, as insurance penetration levels are typically much higher in these areas.

Looking beyond the states Aon Benfield concludes, “the most noteworthy industry loss events were European windstorms across Western and Northern Europe.”

This includes storms Elon, Felix and Niklas, which collectively totalled almost $1.4 billion of total first-half 2015 insurance industry losses from natural disasters.

Commenting on the potential of future losses, Aon Benfield said; “Should current trends from the first half of the year continue, there are currently no regions of the world on pace to surpass their ten-year average in 2015.”

However, as noted in the report it’s important to remember that we are now well underway in the 2015 Atlantic hurricane and tropical storm season, and despite forecasts remaining low and the prediction of a strong El Nino, it only takes one large hurricane to make landfall in the U.S. for insured losses to rise significantly.

“As a reminder, the U.S. remains in the midst of a record-setting stretch without a major hurricane landfall (Category 3+). 2005’s Hurricane Wilma was the last such event,” concluded Aon Benfield.

Continued below-average disaster losses help reinsurers to outperform and reduce losses that could impact insurance-linked securities (ILS) funds, however it also ensures that capital in the industry remains high and therefore pressure on pricing continues.

The low-levels of loss activity have served to mask reinsurer performance figures, helping returns on equity (RoE’s) remain higher than anticipated despite the decline in pricing. Of course a lack of meaningful loss events also makes building reserves harder for reinsurers as well, which means the longer this continues the more reserves may dwindle.