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Insured catastrophe losses in Q2 2023 should be less than $10bn: JP Morgan

30th June 2023 - Author: Kassandra Jimenez-Sanchez

Insured losses from major natural catastrophes in the second quarter of 2023, driven by storms in the US, are estimated to be less than $10 billion, JP Morgan has revealed.

This includes ~$7 billion from the US storms during the month of June, which analysts estimate to be the largest contributor to natural catastrophe losses for the quarter.

As Gallagher Re has also stated, the total cost to the insurance industry from severe convective storms in the US has likely surpassed $25bn year-to-date, JP Morgan noted.

Flooding in Europe during May is estimated to contribute $300-500 million to insured losses and revised estimates from Cyclone Gabrielle expected losses of NZ$1.925 billion versus NZ$1.54 billion previously (difference ~US$0.2 billion).

JP Morgan has also revealed its total natural catastrophe insured losses estimates for H123 to be ~ $23bn, including ~$15bn from Q123.

AmericanAg - Global Reinsurance Solutions

According to the announcement, this looks to be around the same level as H122 and lighter than the historical average for the industry.

“At the end of the second quarter, we estimate total natural catastrophe losses to be $10bn or less, with total losses at 1H23 being at similar levels to those seen in 1H22,” said analysts.

Adding: “In our view, the experience in 2Q 2023 will likely lead to some level of earnings upgrades seen for 2023 or for some of the reinsurers to add to their buffers in reserves whilst maintaining earnings guidance.”

The major events in the quarter were the storms in the US in June, for which insured losses are expected to cost between $5.5 billion and $10 billion, along with deterioration from Cyclone Gabrielle and floods seen in Europe.

Compared to historical averages, analysts explained, $10 billion of nat cat claims or less are likely to be below recent history and should also be lower than nat cat budgets, with losses on an annual basis expected to exceed $120 billion by catastrophe-modelling firm Verisk.

Taking all these into account, JP Morgan still expects hard market conditions to last into 2024 at this stage.

Analysts concluded: “Despite a relatively good first half of 2023 for reinsurers based on top down nat cat losses, we do not expect that this will cause any threat to the strong levels of pricing achieved in 2023 to date fading.

“Based on our conversations whilst marketing in recent weeks, we believe that there is a level of nervousness that capital is coming back to the reinsurance industry and that this will lead to pricing rolling over in 2024. Whilst there has been a strong level of Catastrophe Bond issuance YTD, we do not see this disrupting the reinsurance market and new capital issued by other market participants does not seem to be substantial at this stage.”

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