European reinsurers’ fourth-quarter 2016 natural catastrophe budgets are expected to be used or “slightly exceeded” in response to a more normalised loss experience during the period, according to analysts at Deutsche Bank.
While far less damaging and costly than initially expected the impact of hurricane Matthew, combined with the Kaikoura, New Zealand earthquake, and natural catastrophe events elsewhere in the world, is expected to result in a more normalised catastrophe burden for European reinsurers in the fourth-quarter.
“Overall we expect quarterly natcat budgets being used or slightly exceeded. This will make Q4 a rather normal quarter and also turn 2016 more toward a normal year in respect of natcat burden,” said Deutsche Bank in a recent European Reinsurance Market Research report.
Until a notable increase in 2016, global catastrophe losses had been relatively benign, which, at times of reduced pricing and persistent market softening on the underwriting side, and low interest rates dampening investment returns, has helped reinsurers to remain profitable.
Certain reinsurers, and some more so than others in Europe, and elsewhere in the world, have been relying on reserve releases to bolster quarterly and annual underwriting returns, something that market observers and analysts warned could become a challenge when losses start to normalise.
Now, analysts at Deutsche Bank have said that European reinsurers’ natural catastrophe budgets for the final quarter of the year will either be used or exceeded, suggesting a return to more normalised nat cat loss levels and increased losses for Europe domiciled reinsurance players.
Impact Forecasting, the catastrophe risk modelling unit of reinsurance broker Aon Benfield, released its 2016 annual catastrophe report earlier this month, which put global insured losses from catastrophes at $54 billion, the highest seen in four years and above the 16-year average.
With reinsurance industry reserves reportedly running thin and rates remaining under significant pressure, and expected to fall further throughout 2017, industry players could find themselves with little room to navigate increased catastrophe losses.
Some reinsurers will undoubtedly be able to withstand additional losses more so than others, but with combined ratios of the European players creeping nearer the 100% mark absent higher losses, in response to the soft marketplace, it will be interesting to see what impact 2016’s catastrophe experience had on the performance of Europe’s key reinsurance players, once they report their Q4 and full-year 2016 financials.
