After another year of $100 billion+ catastrophe losses in 2021, reinsurers and London Market insurers are facing an accumulation of losses in the first quarter of this year, raising the likelihood that large losses exceed budget for the period, according to Bank of America.
Analysts warn of heightened loss accumulation as Japan’s Fukushima prefecture recovers from a Magnitude 7.3 earthquake that struck off the eastern coast yesterday at 11:30pm local time.
The UGCS says that the earthquake struck some 57 km east north-east of Namie, Japan at a depth of just over 60km.
While it’s too early to determine economic and insured losses from the quake, insurance penetration is low suggesting that the insured loss will be considerably lower than the overall economic loss.
The 2021 Magnitude 7.0 quake that struck off the coast of the Fukushima region of Japan is a relatively similar event, and according to the General Insurance Association of Japan, resulted in insured losses of more than $1.8 billion.
But while the insured loss from the Japan quake might well be minimal, it certainly isn’t the first large loss event of the year and will add to the burden from flooding in Australia and parts of Europe, as well as the uncertain impacts of Russia’s invasion of Ukraine and the ongoing war.
Both the Queensland and New South Wales areas of Australia have been hammered by flooding that commenced in February. According to the Insurance Council of Australia (ICA), the industry loss has now exceeded the AU$2.2 billion mark and will rise further as claims continue to filter through.
It’s expected that reinsurers will assume much of the loss from the floods in Australia, with a number of primary insurers, including Suncorp, already warning of, or confirming recoveries from their reinsurance partners for the event.
Prior to the floods in Australia, parts of Scotland, Northern Europe, and Germany were battered by windstorm Nadia, also known as Malik. Catastrophe risk modeller PERILS recently published an initial insured loss estimate of €272 million for the storm, of which more than 50% occurred in Germany.
And, then, of course, the decision of Russian President Vladimir Putin to invade Ukraine will have far-reaching consequences for industries of all shapes and sizes, including the risk transfer space.
Currently, it’s expected that direct exposure to Russia and Ukraine is insignificant for reinsurers and London Market carriers, although there’s some uncertainty around specialty lines and notably aviation, marine, credit and political risk.
Insurance penetration is low in both Ukraine and Russia, and as global insurers and reinsurers cut ties with Russia, which in turn has seen the Kremlin ban its insurers from transacting with re/insurers and brokers in what it calls “unfriendly states”, it’s likely that future impacts will be minimal.
But uncertainty is key here, and whether or not the war results in meaningful losses for the industry, the man-made impacts will add to the burden from the natural catastrophes that have occurred.
All of this leads Bank of America to warn that, “There is an increasing risk large losses will be above budget in Q1”.
Q1 2022 results season has yet to begin so we will have to wait and see how reinsurers and London Market players have managed through an active three months, on the back of one of the costliest years for catastrophe losses on record.
It’s worth noting that of Europe’s big four reinsurers, only SCOR decided to cut its nat cat exposure at 1/1, with Hannover Re, Munich Re, and Swiss Re all increasing.