Analysts at KBW are forecasting growing reinsurance losses in 2020 and stronger reinsurance rate increases next year, based on loss activity over the year so far.
Reinsurers Munich Re and Swiss Re have already estimated that insured catastrophe losses will total $27 billion and $31 billion over the first half of 2020 respectively.
And these losses have been compounded by the COVID-19 pandemic, which financial services advisory PeriStrat believes will add a further $25 billion in re/insurance costs.
KBW also notes that Q3 has already proven quite active for insured catastrophe losses, with California wildfires, hurricanes, airline crashes and the Beirut explosion all set to push losses above the average.
“YTD losses have been reasonably significant, and several companies have specifically noted that they’re approaching (and in AIG’s case, are beyond) their aggregate reinsurance protection’s attachment points,” KBW said.
“Consequently, even if Tropical Storms Louisa and Marco and the material California wildfires cause little or no insured losses, we think we’re already beyond the point of ‘benign catastrophe losses’ impeding 2021 reinsurance rate increases.”
Currently, estimates from catastrophe modeller RMS put insured losses for Hurricane Isaias at between $3 billion and $5 billion, while KCC believes the total will be around $4.2 billion.
The Beirut port explosion, meanwhile, is thought to have caused total losses of between $5 billion and $10 billion, with re/insurance protection expected to cover up to $3 billion of this total, according to the Association of Insurance Companies in Lebanon (ACAL).
Additionally, estimates for the Ethiopian Airlines fire, meanwhile, suggest insured losses will be less than $200 million, while the Air India crash will be less than $50 million.
Loss estimates for Storms Louisa and Marco remain uncertain at this point, although intensifying wildfires across Northern California are set to drive major re/insured costs, with tens of thousands of structures thought to be at risk.
Looking at this activity, KBW analysts are confident that reinsurance losses will continue to rise over the remainder of the year and spur greater reinsurance rate momentum into next year.
In particular, the firm has a very favourable view on the Bermuda market based on its rapidly improving returns, but warned that storms could cause disruption in the near-term.
“We remain very positively inclined toward the Bermudian (re)insurers based on steadily-improving expected 2021 returns, but near-term storms (and of course, any other losses that Mother Nature chooses to throw at us this year) imply potentially significant near-term volatility,” KBW stated.
