Posted in News on 08 Oct 2018
According to multiple reports, 2017 was the costliest year for insurers and reinsurers for weather disasters with 60 percent  of worldwide insurance pay-outs during the year linked to Hurricanes Harvey, Irma, and Maria.
Overall, during the course of last year’s hurricane season there were 17 named storms, including 10 hurricanes; including the first two hurricanes to affect the US in 12 years in a single season. This established 2017 to be the seventh most active hurricane season on record and the most active year since 2005. Losses from Hurricanes Harvey, Irma and Maria alone led to over USD $100bn in 2017. For Bermudian insurers and reinsurers specifically, catastrophe losses from hurricanes such as Harvey, Irma and Maria, earthquakes in Mexico and wildfires in California totalled USD8.9bn - a huge upsurge from USD2.1bn in 2016.
The losses from 2017 have led to higher premium rates in loss-affected primary market segments. The market pricing data points towards the fact that the soft market may have finally reached rock bottom and now rate increases are being seen in most classes. Aside from the sheer total of losses seen in 2017, what was also notable was the scale of losses seen across different classes. For example the hurricanes made landfall within a matter of a weeks – leading to additional losses, such as a business interruption and delay in start-up losses as a result of shortages of goods and materials as ports shut down as the hurricanes made landfall. As seen by Harvey in particular, flood peril may also be a substantial driver of losses along with wind and storms. Loss estimates for Hurricane Irma alone ranged between USD25bn to USD65bn, with Florida alone reporting estimated insured losses at USD5.8bn, with around 689,000 residential property claims and 51,396 commercial property claims.  Florida estimated that it had spent around nearly USD650m on emergency resources for clean-up for the storm. 
However, despite 2017 having seen underwriting profitability slip, strong capitalisation will help to mitigate the impact.  Fitch has reported that in fact the reality of the reinsurance market is that alternative capital is competing with traditional capital, and hence this limits the extent of the cyclical price change following heavy catastrophe-loss years.  Regional pricing may harden but the overall impact on global reinsurance pricing is debatable. Insurers with a distinct underwriting strategy and catastrophe modelling function will potentially better placed to operate in the marketplace, but despite this capacity in the marketplace in large and the market have proven their ability to remain resilient in difficult times.
Adam Bragg, head of the Latin American Property team at Alesco commented,
“The final couple of months of the hurricane season will be key in dictating the market attitude towards the continuance of the hardening of terms that we have seen this year following HIM. From a Latin American Property perspective, the general London market stance of a ‘compulsory 10% minimum rate increase’ that has been a feature of renewal business in 2018 seems to be softening. If hurricane activity is benign then this will undoubtedly lead to a further softening, however if Hurricane Florence and the predicted following storms bring meaningful losses to the market that will impact the trend.
In addition, even if the hurricane season eventually does turn out to be comparatively benign, this may well be offset by the further closure of International Property portfolios, following that of the likes of Travelers and Standard Syndicates, thereby reducing capacity. We will of course have a clearer picture of how rating levels react towards the end of 2018…”.
- + http://www.noaa.gov/media-release/extremely-active-2017-atlantic-hurricane-season-finally-ends
- + https://www.ft.com/content/7f9d3eaa-619a-11e8-90c2-9563a0613e56
- + https://www.insurancejournal.com/news/southeast/2017/11/30/472582.htm