Weston M. Hicks, President of Alleghany Corporation, has warned against dismissing third-quarter catastrophe events as an anomaly, events that depleted more than a third of the company’s underwriting profits earned in the prior five years.
The impact of catastrophe events in the third-quarter of 2017 resulted in losses for Alleghany of $755 million, which, amounts to roughly 38% of the roughly $2 billion of cumulative underwriting profits made by the firm for the five years ended December 31st, 2016.
Alleghany achieved this in spite of persistently falling insurance and reinsurance rates in recent times, however, the depletion of more than a third of this underwriting profit from third-quarter catastrophe losses, serves as a reminder to Alleghany and the industry of the nature of the risk business.
In a statement accompanying the firm’s Q3 results, President Hicks discussed recent catastrophe events in light of benign activity in previous years.
“It is tempting to dismiss our and the industry’s significant third quarter underwriting losses as an anomaly that was the consequence of abnormal weather. And while it is true that 2017 has been a much more active and severe hurricane season than most years since 2005, from a long-term point of view we dismiss recent activity at our peril,” said Hicks.
He explained that while hurricane activity was especially active in 2017, for the ten-year period 2007 to 2016, just five hurricanes made landfall in the U.S., with none of them being major storms. In contrast, during 13 of the prior 16 decades ending in 2010, data from the National Oceanic and Atmospheric Administration shows that at least one major hurricane (Category 3 or worse) made U.S. landfall every two years, on average.
Adding further pressure to the marketplace during the recent benign catastrophe experience ending 2016, alternative reinsurance capital flooded the industry, taking advantage of favourable market conditions driven by unusually low hurricane activity.
“In addition, the populations and economies of Florida and Texas grew significantly, with much of the growth in coastal areas. This growth in exposure allowed insurers and reinsurers to maintain premium volume by writing more business at lower prices, and because there were no major landfalling hurricanes, underwriting results appeared satisfactory,” continued Hicks.
Discipline, said Hicks, has become a buzzword for insurers and reinsurers in light of benign loss activity, and again now as a result of strong activity in the third-quarter and the potential for rate increases and intense competition at January 1st, 2018 renewals, from both traditional and alternative capital providers.
“Given the occurrence of multiple major events as we’ve seen in the recent quarter, clear conditions exist for pricing and terms to reset to reflect the newly refreshed realities of the historic risk levels that govern catastrophe insurance markets. However, if the property and casualty industry continues to set prices which are inadequate for long-term profitable results, we will not hesitate to ask our underwriters to further reduce exposure until such time as it does,” said Hicks.