Pre-announcements of catastrophe losses for the third-quarter of 2020 began to be released last night and reports from RenaissanceRe, Arch Capital Group, AXIS Capital and The Hanover seemed to confirm the expectation that the majority would run well above estimates.
Insurance and reinsurance firms have been hit by multiple catastrophe events in the third-quarter of this year, ranging from hurricane activity, to the Midwest Derecho, the California wildfires and on the man-made side of the loss spectrum, the Beirut explosion.
Reports from these early pre-announcers confirm that a share of losses will be flowing to sources of reinsurance and also retrocessional capital, even from the major Bermudian players. So investors in the third-party capital vehicles of some re/insurers are likely to be sharing in any negative performance created by loss activity of the last three months.
First, RenaissanceRe, the most prolific manager of third-party capital and insurance-linked securities (ILS) structures among the traditional re/insurers, who reported an estimated net negative impact of around $325 million on its third quarter 2020 results of operations from catastrophe losses during the period.
RenRe confirmed losses came from hurricanes Isaias, Laura and Sally, wildfires in California, Oregon and Washington, the August 2020 derecho which impacted the U.S. Midwest and Typhoon Maysak.
RenRe also confirmed that, as well as these more significant global catastrophe losses the company has also suffered through aggregation, of these and other events, which has contributed to its losses for the quarter.
As a result of the Q3 2020 catastrophe loss activity, RenRe has warned of an expectation that it will report “modest net income available to common shareholders; however, it expects to report an operating loss attributable to common shareholders.”
Which suggests third-party investors backing the re/insurers ILS structures will certainly have taken their share of losses.
This is also confirmed as RenRe said that within the losses are an element due to lost profit commissions.
Kevin J. O’Donnell, Chief Executive Officer of RenaissanceRe, commented on the pre-announcement, “We extend our sympathies to all those affected by the quarter’s catastrophic events. This elevated wind and wildfire season reinforces the value of reinsurance in ameliorating the growing impact of climate change. Protecting communities from climate-related disaster is an important part of our purpose, which we fulfill through the rapid payment of claims to our customers.”
RenRe also warned on further losses to come from hurricane Delta and ongoing Californian wildfires for its Q4 results as well.
Arch Capital Group
Arch Capital Group also pre-announced its catastrophe losses, estimating a net impact of between $190 million and $210 million across its property casualty insurance and reinsurance segments from the third quarter of 2020.
Embedded within the natural catastrophe losses, that make up the bulk of Arch’s pre-announcement, is a further $10 million to $15 million for exposure to COVID-19 global pandemic claims, the company said, which is in addition to the $260 million estimate previously disclosed by Arch.
It’s the same range of hurricanes and other global catastrophe losses that have driven the bulk of Arch’s quarterly impacts, which are all reported net of reinsurance recoveries made.
This doesn’t include any mortgage insurance related impacts and Arch said those will be reported with its Q3 results.
AXIS has pre-announced an estimated $225 million to $255 million, pre-tax ($190 million to $220 million, after-tax) of third quarter catastrophe losses and impacts from other events.
Hitting both the insurance and reinsurance segments of the AXIS business, the company has also been affected by the same natural catastrophes and man-made losses as its peers.
However and unlike Arch, AXIS has reported no change to its net loss estimate related to the COVID-19 pandemic.
AXIS noted the improvements in pricing it is seeing across most lines and also highlighted that its combined ratios show improvements, except for in catastrophe and weather-related losses.
The last company to pre-announce its third-quarter catastrophe loss impacts, was The Hanover, who said they are above its expectations for the period.
Pre-announcing third quarter catastrophe losses of around $66 million, before tax, or $52 million after tax, The Hanover’s losses came mostly from Hurricane Isaias and wildfires in California and Oregon.
The insurer noted that the losses are around 1 percentage point above its budgeted ratio amount and were slightly offset by around $10 million of favourable prior year development.
This trend, of pre-announcements of catastrophe losses above company and analysts expectations is not unexpected given the amount of activity seen through the third-quarter of this year.
While denting the results for the quarter and turning 2020 even less profitable for some in the insurance and reinsurance world, the losses are not overly significant for anyone it appears and can be easily managed through capital and reinsurance.
Reinsurance capital providers, including investors in ILS funds and re/insurers own third-party capital vehicles are taking shares and will continue to in Q4 as well it already seems.
The aggregation of losses, on top of those earlier this year, is eroding profits in a year where a return to more sustainable levels of profit is becoming a core focus.
All of which is set to put further fuel under the fire set to drive reinsurance rates at the renewals, as these losses eat away at profits, which on top of the impacts from the COVID-19 pandemic this year should further motivate re/insurers to seek out higher and more sustainable pricing.