AIG Chief Executive Officer (CEO) Peter Zaffino has suggested that the July flooding across Europe will likely “hit the reinsurance market more than Hurricane Ida.”
Speaking during an interview as part of a recent KBW virtual insurance conference, Zaffino said that it remains too early to judge what the eventual loss from Ida will look like, but added that reinsurers should perhaps be focusing their attention more on the recent European floods.
“It’s much too early to give any insight, in terms of an accurate update on the recent losses,” Zaffino said. “But it’s clear that it’s going to be a very sizable event. We’ve seen the ranges that are quite significant. So the third quarter has been quite active.”
He also noted that claims from Ida are coming in slowly due to accessibility issues for affected areas, with tight labour markets and materials also complicating the response effort.
According to AIG, there has been a lot more claims frequency on the personal side versus the commercial side following Ida, although this too could change as damages are further assessed over the coming weeks.
The latest insured loss estimate for Ida from RMS put costs at around the $35 billion level in the Gulf region, although CoreLogic believes that the flood element in the Northeast region could drive additional losses of $16 billion to $24 billion.
“The estimates, as I said, are wide ranging,” Zaffino acknowledged. “They seem reasonable. But again, I don’t know how much attention is paid to the losses from the European floods, but particularly in Germany, very sizable, still working through it. I think that will hit the reinsurance market more than Hurricane Ida. But again, that will remain to be seen in terms of how that all plays out.”
At present, catastrophe modellers have much lower loss estimates in mind for the flooding in Europe, with RMS putting insured damages at around $7.7 billion and the GDV estimating €7 billion of costs in Germany, which was the worst affected region.
But it remains to be seen how losses will be split between the primary insurance side and reinsurance in the cases of both Hurricane Ida and the European floods, with Zaffino warning of a big potential hit for reinsurers from the flooding.
“If we look at the loss activity we have … it’s just on our reinsurance programs,” he noted. “We have significant vertical protections in the form of occurrence and we have significant sideways in the form of aggregate protection.”
“So, we have ample reinsurance in place for frequency, and we have ample reinsurance in place for tail events and big severity. So we feel very comfortable with our position in the active cat season. We use reinsurance strategically.
Zaffino added that AIG opted to purchase additional reinsurance in the second quarter of this year, which included buying down on some of its Southeast and Gulf attachment points in North America, and which are likely to come into play with Ida losses, particularly those in Louisiana.
“I think that was just prudent relative to where the market was,” Zaffino explained. “And again, to try to reduce frequency and be able to respond to that. The overall program improved quite a bit, in terms of our attachment points year-over-year, and feel like we’re in really good shape as we get to the back half of the year.”