As we approach the peak months for the 2020 Atlantic hurricane season, analysts at investment bank Berenberg believe that Munich Re is the best placed to withstand a worst-case scenario.
Even in a worst-case scenario, analysts state that Munich Re’s excess capital would only reduce by around 36% at the end of this year, significantly better than its peers.
It is worth noting however, that the use of retrocession and contingent capital could significantly alter the net loss realised by the reinsurer, and consequently the impact on capital would most likely be less pronounced.
Analysts note how, of the four European reinsurers under Berenberg’s coverage, Munich Re has historically taken the highest share of insured industry losses when major hurricanes have occurred.
On average, this has equated to around 4.8% of the total industry losses (per large loss) when taking into account the major Atlantic hurricane losses over the past 15 years.
In comparison, Swiss Re’s share is around 3.8%, Hannover Re’s share is 1.4% and SCOR’s share is 0.7%.
Based on each company’s historical market shares and Berenberg’s view on how each company’s US hurricane exposure may have increased due to the covid-driven hardening rate environment, analysts estimate that a 1-in-200 year loss scenario would be equivalent to an industry loss of around $110 billion to $125 billion.
To put this into context, Hurricane Katrina in 2005 resulted in a $41 billion insured loss, equivalent to around $53 billion today.
In contrast, if the Great Miami Hurricane of 1926 was to be repeated, this would likely result in losses akin to $130 billion, based on current exposures, which in Berenberg’s view seems to be closer to the 1-in-200 scenario being modelled.