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Xactanalysis Insights and PCS

PCS designates record number of catastrophe events in 2020


Highlighting the truly exceptional level of severe weather and natural catastrophe activity in 2020 so far, Property Claim Services (PCS) has already designated a record number of PCS Catastrophe events, with just over two months of the year left to run.

pcs-logoProperty Claim Services (PCS), a division of Verisk Analytics, has been tracking catastrophe loss events for the insurance and reinsurance industry since 1949.

PCS designates catastrophe events once they are understood to be likely to drive a certain level of insurance market losses, then tracking the development of those losses using data direct from the insurance marketplace.

Catastrophe updates are sent out to clients at regular intervals and these PCS catastrophe event reports have become an important source of information for the insurance-linked securities (ILS) market.

PCS has been proving data to ILS market participants for more than 20 years now, offering insight into potential reinsurance losses and also acting as a data source for triggers on industry-loss structured risk transfer, reinsurance or retrocession contracts.

2020 has seen one of the most active U.S. hurricane seasons on record, but even before that began PCS was designating a significant number of severe weather events as insurance market catastrophes, while the recent escalation of U.S. western wildfire activity has also added numerous new catastrophes for PCS to track.

As of late October, PCS had already designated more than 60 catastrophe events for 2020 so far for the United States, beating a record set for the full-year 2019.

There’s plenty of time left this year for further catastrophes to be added as well, with potential ramifications for the reinsurance and ILS market as aggregate deductible erosion continues.

Ted Gregory, director of operations, PCS spoke with us about the record setting year.

“For the United States, we just experienced the second record setting year in a row – and the second year in a row with more than 60 U.S. catastrophe events. Catastrophe activity in Canada has been extremely active this year as well as we have designated 12 events year to date which is approaching our record number of 14 Canadian events in one year along with having one of the worst hailstorms to affect Canada regarding the June Alberta hailstorm affecting Calgary and its surrounding areas,” Gregory explained.

“In the past, severe convective storm events tended to increase the total number of catastrophes that we designated, but 2020 was, to say the least, unique. In addition to a busy hail and thunderstorm year, we had a record number of tropical storm events designated by PCS, cross-border catastrophe designations such as Tropical Storm Isaias affecting the U.S. and Canada, Hurricane Delta affecting U.S. and Mexico which happens to be our first event designated under our PCS Mexico index and the first multistate riot in our history along with starting the year with a rare earthquake event in Puerto Rico.

“It’s been a challenging year, and the entire catastrophe claims and risk-bearing community should recognize the deep commitment made by the catastrophe teams that gathered, projected, and managed the data essential to understanding how these events affect the entire global re/insurance industry. On behalf of PCS, we’re thankful for and appreciative of their efforts throughout the busiest catastrophe year in history, not to mention the added difficulties in overall catastrophe operations caused by the ongoing COVID-19 pandemic. Personally, in a year like this, a big motivator to serve is knowing and helping out the folks who are in it with you. I’m proud to be able to serve alongside my colleagues across the country and around the world,” Gregory said.

Michael Thompson, Senior Claims Analyst, PCS added, “It wasn’t just the sheer number of events that made 2020 unique. We also experienced a record number of events exceeding US$1 billion, 15 year to date, which qualifies them for further analysis under the PCS county-level estimate platform. The broadest of these events this year, an early year major severe convective storm in April, covered more than 1600 counties in 24 states. The level of effort associated with county-level analysis is significant, which is indicative of the value such granularity provides to the broader re/insurance community.” Thompson adds, “In Canada, we’re in the middle of our second busiest year, as measured by number of events. Based on historical loss years, it seems possible that we could at least match our busiest year by frequency by the end of 2020. While we’ve had one loss over CD$1 billion, 2020 is already among the five costliest years on record with PCS Canada, as measured by insured loss. And we’ve just designated our first event[s] under PCS Mexico, where our continued work with AMIS have begun to provide demonstrable value to the insurance community in Mexico.”

The level of billion dollar loss events hitting a record is also incredibly notable for the ILS market and reinsurance capital providers, as the larger the catastrophes the more likely per-occurrence structures respond and the greater the impact to aggregate covers as well.

Hence, while 2020 hasn’t seen any really major industry loss cat events, it is still proving costly in terms of attrition and now aggregate losses.

Tom Johansmeyer, head of PCS, further explained, “What I’ve found to be incredibly impressive – from the PCS team through the entire community of claims professionals supporting our estimation process – is the fact that it didn’t stop during COVID-19. It didn’t even slow down. A loss reporting team is only as effective as the community that supports it, and I can’t begin to express our team’s gratitude for the collaboration we’ve enjoyed throughout this busy catastrophe year throughout the entirety of North America. A loss reporting team needs to be available, active, and accurate particularly during difficult times, and I continue to be inspired by the PCS team and extended community that makes this happen.”

Adding that catastrophe activity is not just natural and PCS is active in other market segments as well, “Outside of catastrophe risk, we saw plenty of other significant events, including the Beirut and Mauritius marine and energy losses, several ransomware events that led to losses reported by PCS Global Cyber, and the first-quarter Lotte Chemical event under PCS Global Large Loss in the Republic of Korea.”

As we discussed yesterday in an article, leaders of the insurance and reinsurance industry are increasingly citing climate change in relation to the elevated frequency of catastrophe losses affecting re/insurers.

Whether you believe climate change is a factor in driving catastrophe losses, or not, the trend towards larger losses from so-called secondary perils, more impactful severe storms, rainstorms and floods, plus rising wildfire activity and other minor peril events, is driving elevated losses to the industry through the increased frequency of events that cause impactful market losses.

PCS has been tracking events of note to the insurance, reinsurance and ILS sector for decades and this service is invaluable as the industry looks to adapt to the reality of catastrophe and weather loss activity today.

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