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


Industry losses from recent winter storm activity in the United States are seen as another driver for more firming of reinsurance prices at the key mid-year renewals, according to analysts at Keefe, Bruyette & Woods.

reinsurance-contract-renewal-signingKBW’s analyst team attended the recent Association of Insurance and Financial Analysts (AIFA) conference and came away more confident that “commercial (particularly specialty) insurance lines’, and virtually all reinsurance lines’, rate increases will increasingly translate into core combined ratio improvement over the next 12 months.”

While the January 2021 reinsurance renewals were seen by some as disappointing, KBW’s analyst team believe that “reinsurance renewals disappointed investors more than reinsurers.”

Even though the rate increases achieved in property catastrophe risks and retrocession did not live up to some early forecasts from around the key reinsurance conference season in 2020, KBW believes that “casualty and specialty reinsurance lines’ rates, terms, and conditions all point to significantly improving returns,” for the reinsurers it tracks.

Looking to the next key reinsurance renewals, of largely Japanese business at April 1st 2021, KBW’s analysts say “reinsurers are modestly optimistic about higher Japanese wind rates” at these contract signings.

But the mid-year renewals now look a little more positive it seems in the wake of winter storm Uri and the related severe winter weather, which the analysts say could be a catalyst for more firming at June and July 1st reinsurance renewals.

Most executives KBW’s team encountered view industry loss estimates of $10 billion to as much as $20 billion from the winter storms as a reasonable range, the analysts said.

The losses are expected to be “manageable” KBW said, but they noted that the losses are “likely to sustain mid-year property catastrophe reinsurance rate increases.”

KBW expanded on this, saying that reinsurers, “expect persistent catastrophe event frequency (including February’s Winter Storm Uri) and the mid-year renewals’ more heavily loss-impacted accounts to sustain solid reinsurance rate increases during the Southeastern U.S.’s 6/1 and 7/1 renewal periods.”

The losses from the winter storm are set to impact insurance carriers which are active in the typical wind exposed southeastern U.S. states, meaning the added pressure of these losses, as well as some possible reinsurance recoveries, will all have to be taken into account at the mid-year renewal season.

With some carriers in these areas set to report record first-quarter catastrophe losses on the back of the winter storms, it’s reasonable to expect reinsurers will strengthen their resolve when it comes to renewal rates and pricing.

Also read:

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.

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