As industry losses from so-called secondary perils such as wildfires, winter storms and floods continue to rise, coupled with the expectation of more frequent and severe events in general, climate change is “front and centre in most people’s thinking,” according to Andy Marcell, Chief Executive Officer (CEO) of Aon’s Reinsurance Solutions.
The reinsurance division of the global brokerage kicked off its virtual renewals season yesterday with an executive panel which explored the current market environment, some regional highlights and sector dynamics, relevance, and the impacts of the changing climate.
“We’ve had a series of losses, if you will, from climate change, and climate change and the pandemic are front and centre in most people’s thinking,” said moderator Marcell.
While losses from the COVID-19 pandemic haven’t stopped for reinsurers and in some cases remain above-expectations on the life and health side of the business, the global vaccine rollout has enabled societies and communities to open up and combined with the introduction of exclusionary language at renewals, P&C losses continue to fade.
But as pandemic-related P&C losses have declined, weather-related losses have increased.
Aon pegged H1 2021 insured catastrophe losses at USD 42 billion, which is in line with the 10-year average of USD 41 billion but almost 40% higher than the average for the 21st Century so far, which amounts to just USD 30 billion.
“2021 has been dominated by a series of very large scale and very expensive events for the insurance industry. The year started off, of course, with the prolonged polar vortex, the extended freeze across southern portions of the United States with an emphasis in Texas, where we saw more than $15 billion worth of insured loss,” said Steven Bowen, Head of Catastrophe Insight, Impact Forecasting, Aon.
“Then, of course, we’ve transitioned into typical severe weather season in the US, which we know has become an increasingly important peril for our clients, especially on an aggregate basis. This is again another year which we’ve seen more than $10 billion from this peril. A lot of folks like to talk about the new normal, this is a new normal in terms of losses surpassing that threshold. In fact, globally, we’re already above $25 billion for SCS this year,” he continued.
Since Aon’s H1 2021 estimate, wildfires have continued to ravage California and other parts of the world; areas of Europe, notably Germany, have experienced record levels of rainfall and devastating flooding; China has experienced its costliest ever individual insurance event as flooding impacted the Henan province; while hurricane Ida has battered Louisiana as a Category 4 storm before its remnants hit northern parts of the country, resulting in severe flooding in New York and New Jersey.
“So in terms of climate change, all of this is really very closely aligned with what we would expect,” said Bowen.
Considering the elevated loss experience, Marcell questioned what this is doing to the mindset of the insurers and reinsurers, and whether they are getting adequately rewarded for the volatility they’re assuming with these perils.
“You see some of the performance and the guidance from the analysts in respect to that, and that is causing people to shift their portfolios. And, maybe, they’re going to amplify insurance over reinsurance, casualty over property, and we see a lot of that sort of debate happening around the industry,” said Marcell.
It remains to be seen what happens to rates as the market approaches the important January 1st, 2022 reinsurance renewals, but market sentiment suggests at least a stabilisation with more positive movements in loss-affected areas, such as European property cat, for example.
At the same time, we’re only about halfway through the Atlantic hurricane season and with the U.S. wildfire season yet to peak, it will be interesting to see how dynamics shift in the final months of the year should losses spike considerably.
According to Mike Van Slooten, Head of Business Intelligence, Aon Reinsurance Solutions, in the lead up to the renewals, “There’s no doubt the impacts of climate change and the recalibration of secondary perils is going to remain a hot topic”.
While Joe Monaghan, Global Growth Leader at Aon Reinsurance Solutions, explained how the broker is “investing heavily and will continue to invest heavily in helping our clients and reinsurers understand how climate change affects the cost of risk.”