Reinsurance to offer insurer respite after winter storm Uri loss: S&P

Reinsurance recoveries are set to offer some respite to insurance carriers exposed to winter storm Uri and the deep freeze event that impacted the south, in particular Texas, according to S&P Global Ratings.

S&P explained that, across its coverage universe, “The ratings impact from Uri is neutral for the North American life, property/casualty insurance, and reinsurance sectors.”

Concluding that, “When losses are aggregated, we expect the sector to able to absorb losses and this to be an earnings, not a capital, event.”

Homeowners and commercial property insurance lines are expected to be the most affected areas of the market, S&P said, but warning that the market could also see some increased claims flow in lines such as automobile and general liability policies.

The rating agency believes that reinsurance capital will be called on to support the industry’s losses from the winter storm and Texas deep freeze.

S&P said, “Ample reinsurance protection and robust capital among insurers should offer some respite to offset this unusual loss.”

However, the rating agency also warned that the winter storm will be an early event that erodes catastrophe budgets for some.

For those insurers with high exposure to the affected region and with perhaps less-robust capital provisions, S&P said they could find themselves exposed to greater capital pressure should catastrophe losses in the coming quarters also reach higher levels than those in previous years.

One are that the focus has not been so far, in relation to the severe winter storms and freezing weather, is how they could impact some investment portfolios.

S&P warns that it is aware of life insurers with direct asset risk to Brazos Electric Power Cooperative through investment in its debt obligations. It sees the risk as manageable, with no single insurer having any more than $40 million in bonds currently, “negligible when compared to the individual group’s capital and surplus,” S&P explained.

Reinsurance capital looks set to prove its worth for insurance carriers after this winter storm, with numerous set to make recoveries on excess of loss towers and a significant amount of claims likely to flow through quota share reinsurance arrangements as well.

However, the quantum of the industry loss may not be as severe as initially feared, with estimates now coming down to a $10 billion to $15 billion range.

Reinsurers and ILS funds have become more comfortable in the last week or two, as some of the early estimates of losses flowed from the large nationwide carriers that are the most exposed.

These early loss indications suggest a significant personal lines event, but with a lower average claims value, largely due to the freeze event.

As a result, it looks like unless a significant wave of business interruption occurs, the eventual industry impact will be a little lower than originally thought.

The capital markets are set to pay a share, with ILS funds writing collateralised reinsurance facing some losses, while the cat bond market already appears to have one confirmed bond principal loss facing it as well.

Also read:

– US deep freeze looks like $10bn to $12bn property cat loss: Albertini, Leadenhall.

– Allstate says winter storm loss to trigger Sanders Re II 2019-1 cat bond.

– Progressive makes $40m reinsurance recovery for US winter storms.

– Munich Re expecting winter storm loss in the mid-hundreds of millions.

– Cat claims 34% above 10-year average in 2021 on US winter storm: Jefferies.

– Winter storms mean higher renewal rates into 2022: ILS Capital.

– Aon says winter storm losses to hit record level, warns of climate effect.

– Winter storm losses in Texas drive ERCOT subrogation speculation.

– Winter storm losses to factor into alternative capital investor discussions: S&P.

– Winter storm exposed cat bonds stage partial price recovery.

– US winter storm loss creep likely to be prolonged: Aon.

– Winter storm losses seen a driver for mid-year reinsurance firming: KBW.

– Winter storm at $12bn – $18bn only attritional to aggregate cat bonds: Plenum.

– USAA aggregate cat bonds in focus on winter storm impacts.

– Hurricane-level winter storm claims to drive billions of losses: Aon.

– Winter storm Uri loss could be “well in excess” of $10bn: AIR.

– Palomar expects reinsurance recoveries for winter storm Uri.

– Winter storm Uri insured loss seen up to $20bn: Fitch.

– Winter storm Uri an aggregate threat, but commercial loss may protect ILS: Twelve Capital.

– Winter storm to drive record losses, reevaluation of cat budgets: AM Best.

– KCC raises US winter storm insurance industry loss estimate to $18bn.