Analysts at Kroll Bond Rating Agency (KBRA) believe this year’s active hurricane season, along with growing costs of the US wildfires and the COVID-19 pandemic, will cause insured catastrophe losses to exceed 2019 levels.
The result of this elevated catastrophe bill will be further upward pressure on reinsurance pricing, KBRA said, with renewals set to become increasingly challenging for primary carriers.
At the renewals, both primary insurers and reinsurers are likely to pay particular attention to the risks they want to cover and how the related policies are worded, while considering the long-term impacts of climate change on hurricanes and wildfires.
“In our view, recent events and future cat-related losses will continue to support pricing increases in many lines and will likely also lead to changes in terms and conditions as well as product structure,” KBRA stated.
Guy Carpenter estimates that global cat and pandemic-related losses could approach $160 billion this year, making it the highest global loss year on record, exceeding the high loss years of 2005, 2011, and 2017, which totalled $140 billion to $150 billion each.
Re/insurers had a more positive catastrophe outlook earlier in the year after the NOAA predicted a “near-normal” hurricane season for the Atlantic and Pacific regions, but this was quickly revised to “extremely active” after the season kicked off early.
KBRA notes that the existence of Hurricanes Paulette and Sally, Tropical Storms Teddy and Vicky, and Tropical Depression Rene marks only the second time in history that there have been five active tropical cyclones at the same time.
September is also the month that hurricanes most frequently make U.S. landfall, meaning there is plenty of time left for further major storms to occur.
At the same time that winds, rain, and storm surges are pounding the US Gulf and eastern coastline, the West Coast is dealing with another year of devastating wildfires.
Fires are raging not just in California and Oregon, but have also flared up in other states including Washington, Idaho, Montana, and Utah.
And on the manmade cat side, KBRA reported that there is major loss potential concerning business interruption policies linked to the COVID-19 pandemic.
For example, the UK High Court recently sided with policyholders in the landmark case brought forward by the FCA, which could result in claims costs of between £3.7 billion to £7.4 billion.
“A broad-based voiding of contracts that makes (re)insurers liable for losses they neither covered nor priced for would be profoundly catastrophic for the industry, and beyond that could raise significant concerns throughout the economy about the sanctity of contracts,” KBRA stated.
