Bermuda headquartered ILS fund and investment manager ILS Capital Management, has said that it expects that industry losses suffered from the recent winter storms and Arctic blast in the United States will drive renewal rates higher at the mid-year and also further into 2022.
The ILS investment manager revealed an expectation that, at an industry loss around the levels estimated by Karen Clark & Company, so around US $18 billion, ILS Capital Management is anticipating a negative impact to its 2021 Live Portfolio somewhere in a range from 75 – 175 bps due to the winter storms and freezing Arctic weather event.
ILS Capital Management said that, at this stage, its seems the losses are likely to impact the property insurance market more than the reinsurance market, which is set to provide further impetus under rising property rates and pricing.
However, the impact to its own managed ILS funds is likely to be manageable, as ILS Capital has less property insurance exposure to Texas and its reinsurance book covering that region is not particularly significant.
ILS Capital Management explains the “unprecedented” nature of the winter storm industry loss, highlighting that the estimate seen “already eclipses the previous record storm for the U.S. by quite a significant margin.”
The ILS fund manager said that a number of insurance carriers are considered particularly exposed, with Chubb, Travelers, and Liberty the market leaders in commercial insurance in Texas, while State Farm is the personal lines leader followed by Allstate and USAA in homeowners insurance and Progressive and Berkshire Hathaway in automobile insurance.
ILS Capital said that it “established precautionary reserves on several U.S. property reinsurance contracts,” in February
However, the ILS fund manager’s own U.S. insurance company “has no property exposure in Texas,” and at the time of writing its report ILS Capital had not seen any increase in auto insurance claims on programs it has exposure to.
Summing up, ILS Capital Management explained, “For the insurance and reinsurance industry, the timing of these Arctic storms makes the event even more notable; while the first quarter is generally a quiet period from a catastrophe loss perspective, February’s events have already racked up a significant tab for the insurance and reinsurance industry.”
Adding that, “Collectively, this unprecedented cold snap will serve as yet another factor that will drive rates higher at mid-year renewals and into 2022.”
With mid-year reinsurance rates already anticipated to rise, the losses from the winter storm will provide further impetus under the firming.
With some of the more exposed carriers also having reinsurance that renews at 1/1, there is also a possibility the winter storm losses may help to hold up rates even further ahead, as ILS Capital Management suggests.