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High U.S. tornado activity manageable for EU reinsurers in Q1: RBC

14th February 2017 - Author: Luke Gallin

Tornado activity in the U.S. during January was particularly high when compared to a three-year average, a trend that continued into February. However, analysts at RBC Capital Markets say that while activity has been elevated, costs are likely to be well within first-quarter catastrophe budgets for European reinsurers.

A total 138 tornadoes touched down in the U.S. during the month of January, which is substantially higher than the three-year average of 16 tornadoes, says RBC Capital Markets’ analysts. Furthermore, activity in February has also been high, so far, with 16 tornadoes striking the U.S. Southeast, including Louisiana, Mississippi, Alabama, and the New Orleans metropolitan area.

The report cites figures from Impact Forecasting, the catastrophe risk modelling unit of reinsurance brokerage Aon Benfield, a subsidiary of Aon plc, which recently highlighted costly winter weather and convective storm activity in the U.S., so far in 2017.

As reported at the time by Artemis, convective weather (which includes tornadoes) in the U.S. during January is expected to result in an insurance industry loss of more than $1 billion, and the trend appears to have continued into February.

But despite the high level of activity, RBC analysts appear confident that EU reinsurers’ first-quarter 2017 catastrophe budgets will be able to absorb the claims costs’ from U.S. tornado activity.

RMS

“Overall, although tornado activity has been higher than average, the claims costs should still be well within the reinsurers’ catastrophe budgets for Q1, in our view,” says RBC.

Despite falling returns in the global reinsurance market and reports of reserves thinning, reinsurance companies in Europe and elsewhere remain strongly capitalised owing to the benign loss landscape (although this has picked up in more recent times) and the influx of alternative reinsurance capital, that continues to drive a supply/demand imbalance in the sector.

As a result the capitalisation of EU reinsurers, especially the big four that RBC typically comments on, being Hannover Re, Swiss Re, Munich Re and SCOR, remains very strong, leading RBC to expect companies to be able to manage the recent high level of U.S. tornado activity.

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