Swiss Re Insurance-Linked Fund Management

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Swiss Re expects $1.4bn Q3 large loss hit after retrocession


Global reinsurance company Swiss Re has estimated that its third-quarter 2018 large loss burden will amount to roughly $1.4 billion after retrocession, with natural catastrophes driving the majority and typhoon Jebi the most costly event of the quarter.

Swiss Re logoSwiss Re said that it anticipates a $1.1 billion hit due to natural catastrophe losses from Q3 2018, net of retrocession and before tax, with weather related loss events in Japan driving the bulk of the impacts.

Typhoon Jebi is estimated to be the most costly event of the quarter, as it will be for many reinsurance firms and also ILS funds. Swiss Re estimates this event alone will result in a $500 million loss to its reinsurance operations.

Swiss Re has also estimated the industry-wide loss from typhoon Jebi at around $6 billion, which is roughly aligned with market expectations (although some believe this will run a little higher).

After Jebi, Swiss Re expects to suffer $120 million of losses to both its reinsurance and commercial insurance operations due to hurricane Florence’s impacts on the United States during the quarter, as well as another $500 million of catastrophe losses aggregated across events including typhoon Trami in Japan, the Carr wildfire in California and a windstorm in Ontario.

Swiss Re estimates the industry loss from hurricane Florence at $4 billion.

On top of the $1.1 billion of natural catastrophe losses, Swiss Re is expecting around $300 million of man-made disaster losses from Q3 as well.

Driving these man-made impacts are the Genoa motorway bridge collapse, the recent fire at a floating dock in the shipyard of luxury super yacht manufacturer Lürssen and the Ituango dam loss, which is set to become the largest construction claim ever.

The man-made loss events are expected to hit both the reinsurance and Corporate Solutions sides of Swiss Re’s operations equally.

Commenting on the losses, Group Chief Underwriting Officer, Edouard Schmid, said, “We extend our deepest sympathies to those who have been affected by these catastrophes. We are working very closely with our clients and partners to help rebuild as quickly as possible. With our strong capital position and high financial flexibility, we are able to react fast when our clients need us most. We also want to stress our continued commitment to providing capacity in Japan, where we demonstrated our steadfast support following the earthquake off the coast of Honshu in 2011.”

Swiss Re said that its “cumulative losses for the first nine months are broadly in line with year-to-date expectations,” but added that the $1.4 billion of Q3 losses are large for a single quarter.

The equity analysts who have reported on this loss announcement so far feel that the burden is higher than expected, in some cases almost double the level of large losses analysts had been anticipating from Swiss Re.

This suggests higher than expected losses for the other major reinsurers and also some of the leading ILS strategies, we’d imagine.

So Swiss Re is set to call on its retrocessionaires for support with its third-quarter loss burden, particularly the catastrophe impacts it seems.

It’s possible that an element of the retrocessional support may come from the Swiss Re collateralised reinsurance sidecar vehicle Sector Re, which is invested in by many in the ILS sector, including the mutual ILS funds.

While there has been no single really large loss in Q3, the aggregation of all of the catastrophe loss events, alongside some major man-made loss events, does mean that retro providers are likely to be hit and some of these losses will flow through to the ILS market and capital markets capacity providers.

It remains to be seen how big an impact hurricane Michael will have to reinsurers fourth-quarter results.

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