Natural catastrophe losses in 2017 highlight disparities in reinsurers’ exposures, raising concerns over the industry’s ability to handle another costly year effectively, says S&P Global Ratings.
S&P found that estimates for aggregate annual losses in 2017 ranged anywhere from between 1-in-10 to 1-in-60.
To an extent, S&P believes return period estimates reflect the level of conservatism embedded in the probabilistic modelling of each reinsurer’s exposure.
Additionally, most reinsurers rely on third-party vendors or internally developed catastrophe models to form their own view of risk.
The level of prudency in loss estimates also affects the estimate of return periods, says S&P, as loss reserves develop and claims are paid. The actual loss estimates might vary across reinsurers because the uncertainty is high on losses incurred but not yet reported (IBNR) that are being provisioned on the hurricane Harvey, Irma and Maria events.
On average, S&P assess that IBNR represent 50% of loss estimates, based on information provided by reinsurers at year-end 2017.
Including Q1 2018 results, so far S&P has not monitored any significant negative development on claims reported in particular on the HIM losses. And says it will monitor how claims develop over time to inform its view on the relative strengths of reinsurers’ reserving practices.
