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Cat losses running 20% above average this year: Jefferies

19th March 2021 - Author: Matt Sheehan

Analysts at Jefferies have estimated that insured catastrophe losses year-to-date are running at around 20% above the long-term average, or 34% above the 10-year average.

severe-weather-snow-stormLooking at the month of February alone, catastrophe losses are 59% above the long-term average, Jefferies says, with winter weather accounting for 97% of the insured losses in this period.

Analysts noted that US winter weather in particular has been a critical driver of insured losses so far this year, primarily due to the extreme freezing cold conditions across many parts of the US and extending into Mexico during February.

Given the wide geographical spread of this event, both the economic loss and frequency of claims will be high, although Jefferies’ industry loss estimate of $7.6 billion is significantly lower than some risk modellers, which have settled on loss ranges of $10 billion to $20 billion.

Jefferies further notes that losses are likely to be absorbed largely on the primary side, rather than through reinsurance, due to the aggregation of smaller size and low severity events.

But from a pricing perspective, if unexpected events like the US winter weather and severe weather losses continue to increase in severity, this could build momentum for both insurance and reinsurance prices.

Moreover, Jefferies suggested that the current deteriorating winter weather trends could perhaps be an indication of climate change and further suggests that consensus may be underestimating the severity of losses emerging from this peril as they tend to be less frequent than other perils.

Outside the US, insured losses were far lower than average. Notable events included winter weather in Europe, Tropical Cyclone Niran in Australia, the Japanese earthquake at magnitude of 7.1 and French floods, all of which are immaterial relative to the winter weather losses in the US.

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