Global insurance and reinsurance giant Zurich has exhausted its aggregate catastrophe reinsurance protection during the third-quarter, as significant losses from hurricane Ida and the European floods took their toll.
This morning, Zurich reported an expectation that its hurricane Ida loss would amount to around $450 million, while the European floods are expected to cost it around $150 million to $200 million, after the effects of reinsurance recoveries.
Analysts have estimated that Zurich’s catastrophe losses from the first nine-months of the year could be around the $1.5 billion mark, which again seems likely to be after reinsurance.
CFO George Quinn discussed the catastrophe activity in an afternoon analyst call just now and revealed that the loss events have completely eroded its aggregate protection.
“On the aggregate, given there is a number of losses I suspected back in September that we would go through the aggregate, and we have. So cat aggregate at this point is exhausted,” Quinn explained.
Zurich’s catastrophe loss experience is running some 3 to 4 percentage points ahead of long-term averages, Quinn explained.
He said this isn’t far out of expectations, but does reflect an “increased frequency and severity trend” in the catastrophe loss events Zurich pays claims for.
Asked whether Zurich will look to adjust its reinsurance protection for 2022, with the renewal season fast-approaching, Quinn explained that changes will be minimal.
“I don’t expect us to significantly change the program we have in place, we like something that protects us against frequency and more significant events for severity,” he explained.
Adding, “We’d expect to renew something similar to the reinsurance program you see today.”
Quinn went on to say that Zurich doesn’t expect to buy any more coverage, as it would prefer to manage risk as it flows inwards.
“We’d rather manage risk coming in, than buy more reinsurance,” he said. Adding, “We’ve budgeted for next year and our expected loss for natcat is similar to the past.”
Looking through the rest of the year, although Q4 is typically a quieter period for catastrophes, Quinn said that Zurich remains well-protected, even with its aggregate catastrophe reinsurance cover exhausted.
“All of our regional cat towers are untouched, so the group still has adequate protection against severity,” Quinn said.
We reached out to ask Zurich for its views on how the January renewals may go for its reinsurance negotiations.
A spokesperson told us the company is positive, despite being aware that loss affected accounts are likely to be a focus.
“Zurich’s reinsurance strategy follows a long-term approach and has been very stable over the last few years. Reinsurance helps us to protect our balance sheet and to mitigate unwanted earnings volatility, and all treaties placed in the reinsurance market have a clear goal statement.
“As the insurance industry was generally faced with an above average frequency and severity of Nat Cat events in 2021, reinsurers expect terms and conditions in 2022 to be more reflective of the actual treaty performance. As we have a globally well diversified treaty portfolio combined with strong reinsurance relationships, we expect the negotiations to be balanced,” the spokesperson explained.