According to a recent report by Moody’s, the Property & Casualty (P&C) insurance sector is witnessing a shift as primary insurers retain more risk following the raising of attachment points by reinsurers looking to reduce frequency losses to offset years of poor returns.
Historically, primary perils like hurricanes and earthquakes have been the focal point of insurers’ risk management strategies.
However, the report highlights that secondary perils, such as severe convective storms, wildfires, and extreme precipitation, are proving to be significant contributors to aggregate losses.
The increased frequency and severity of these secondary perils are prompting insurers to adopt a more granular approach to modeling and managing catastrophe risks.
The escalating losses in recent years are attributed to the expanding spread and value of economic development in vulnerable areas.
This trend is further exacerbated by the impacts of climate change on certain perils, coupled with rising costs for construction materials and labor.
As a result, insurers are urged to consider recent events and future scenarios, incorporating property development trends and potential climate effects into their risk assessments.
Notably, when catastrophe losses arise from secondary perils, primary insurers bear the brunt, as losses from smaller individual events often fall short of attachment points for per-occurrence catastrophe covers.
Global reinsurers, responding to years of low and volatile returns, have taken a proactive stance by significantly increasing prices and tightening terms and conditions for catastrophe protection.
In addition to price hikes, reinsurers have adjusted attachment points on many occurrence-based covers and reduced or eliminated most aggregate covers, the report noted.
This shift is aimed at improving returns on capital and ensuring the sustainability of the industry.
Survey results indicate that a majority of respondents anticipate high single-digit or higher price increases over the next couple of years.
