According to analysts at Howden, the growing threat of climate change and its influence on the severity of many insured catastrophes is removing the need for any distinction between ‘peak’ and ‘non-peak’ perils.
The broker says climate risk replaced COVID-19 to become the re/insurance market’s pre-eminent concern in 2021, as another year of elevated catastrophe losses added further to evidence that climate change is influencing the frequency and intensity of certain perils.
Insured natural catastrophe losses exceeded $100 billion in 2021 and have now surpassed $450 billion in aggregate since 2017, with recent losses notable for the unusual and mostly non-modelled nature of events.
Howden points to winter storm Uri as a clear example of this trend this year, along with the European floods and Hurricane Ida.
Other stand-out secondary or non-peak events last year included the Quad State tornado outbreak, more wildfires in the US and Europe, and historic floods in China and Canada.
“Both Uri and the EU floods caused record peril-related insured losses in their respective regions. Their quantum was more akin to levels associated with peak perils such as hurricanes and earthquakes, heralding a structural change to the loss environment,” Howden observed.
The broker’s data shows that, since 2013, secondary perils have been the biggest component of loss in all but one year (2017).
At the same time, losses from severe weather, made up predominantly of US convective storm events, have come close to surpassing those from global tropical cyclones.
“The ‘peak’ and ‘non-peak’ peril distinctions of the past are becoming irrelevant because of climate change,” Howden explained.
“Carriers are reassessing risk appetites as questions around catastrophe model efficacy add to uncertainty around price adequacy. Low attaching layers were under close scrutiny during this year’s 1 January reinsurance and retrocession renewals, reflecting the prevalence of mid-sized losses that have been a notable feature of the last five years.”
This has resulted in bifurcated outcomes for lower and upper layers transpired as markets withdrew capacity or demanded higher pricing for frequency covers, Howden notes, as well as for loss-free and loss-affected programs.
“Given the increased volatility of secondary events now strongly linked to climate change, this will be an area of continued focus and action for the market in 2022,” the firm concluded.