Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Hurricane Ian’s reinsurance influence to extend well-beyond Florida: Swiss Re


Hurricane Ian is seen as an additional catalyst for hardening reinsurance rates, by global giant Swiss Re, who warns that its impact “will extend beyond Florida and add to pre-existing drivers of rate increases such as claims inflation.”

swiss-re-building-logo-newReinsurance capacity was already limited even before hurricane Ian’s onslaught of Florida back in September and a firming market was anticipated well-before it formed.

“Constraints on new sources of capital” is one issue, alongside broader macro-economic volatility, inflation, concerns over secondary perils and climate change, Swiss Re said.

All this, “Against a backdrop of six years of elevated insured property losses, after five years of below-average losses.”

Swiss Re estimates that hurricane Ian will drive between US $50 billion and $65 billion of industry losses, but also highlights the potential for uncertainty.

Saying, “Losses may be amplified by a surge in demand due to already- strained construction and motor supply chains, and Florida’s unique litigation environment.”

Adding, “The impact on an already- strained re/insurance market in Florida will likely be significant and extend globally.”

Which has become a driver for the significant rate hardening being seen in January renewal negotiations and placements.

“The upcoming renewals come on the back of a period of elevated catastrophe insured losses in 2017-2022, after a benign period from 2012 to 2016. The latter led to industry underestimation of ever-growing property exposures due to a rise in values at risk in exposed locations, and continued urban sprawl and economic growth, all against a backdrop of hazard intensification as the planet warms,” the reinsurer explains.

Going on to say that, “Even before Ian, however, our expectation was that supply and demand for reinsurance would converge at higher prices as the market adjusts to underpriced risks, and also due to constraints on capital.

In a reinsurance market with dented capital supply, Swiss Re also believes that growth of reinsurance capital has been too slow, with exposures rising faster than the supply-side of the market.

In the past, significant catastrophe losses have been followed by a wave of capital, with alternative capital and insurance-linked securities (ILS) investors a key source.

However, the level of alternative capital in reinsurance hasn’t been expanding since 2018 really.

“ILS structures have become more exposed to loss creep and coverage disputes, and ILS investors are hesitant to commit fresh capital to natural catastrophe risks ahead of what could be another heavy-loss year, with economic inflation adding to valuation and pricing uncertainty,” Swiss Re said.

Adding that, “Globally, modeling gaps persist, profitability hurdle rates have risen with higher yields and spreads, and a significant amount of retrocession capacity (mostly AC) is trapped and may not be fully replenished for the 1 January renewals.”

All of which means that the added pressure of hurricane Ian is seen as the straw that broke the reinsurance camels back and has greatly accentuated an already present hardening trend, with the renewals strained as a result.

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