Australian headquartered global insurance and reinsurance giant QBE Group said this morning that it expects a roughly US $600 million hit to its profits due to the impacts of 2017 catastrophe events.
The company said that 2017 catastrophe loss experience for the global insurance and reinsurance industry could be the highest ever seen, adding that the impacts of Cyclone Debbie in Australia earlier this year, Hurricanes Harvey, Irma and Maria in recent weeks, as well as the two earthquakes in Mexico, have all dented QBE’s business.
As a result of the consecutive catastrophe hits, QBE said it was increasing its 2017 allowance for large individual risk and catastrophe claims to $1.75 billion for the year, including its fourth quarter 2017 catastrophe allowance.
As a result of increasing the catastrophe allowance, QBE said it will take a pre-tax hit to earnings of approximately $600 million for the year, which is expected to push its 2017 combined operating ratio target range to 100% – 102%.
QBE CEO John Neal commented; “While it is too early to speculate how much reinsurance and primary insurance pricing will rise as a result of recent catastrophe experience, QBE is well placed to benefit from price rises with much of our reinsurance programs already purchased for 2018.”
Interestingly, QBE had said that 2017 large individual risk and catastrophe claims would be capped as its large individual risk and catastrophe aggregate reinsurance program would cap losses at its attachment of $1.15 billion, covering the next $900 million of losses, in the majority of circumstances.
Circumstances change though and 2017 catastrophe experience has not been typical, meaning that QBE has burnt through this entire $900 million aggregate catastrophe layer, given the aggregation of recent hurricane events and the fact that it had begun to call on this reinsurance support after Cyclone Debbie earlier this year.
QBE had a significant exposure to hurricane Maria being an active insurer in Puerto Rico, which added to the other storms likely means the company had a significant loss across the three major hurricanes.
So QBE will utilise the entire aggregate reinsurance protection, plus reinsurance that it has on an excess of loss basis (although this hasn’t been disclosed) and the firms captive reinsurer Equator Re is also destined to take a hit.
Of course, only one reinsurer gets hit by the aggregate program loss though, as Berkshire Hathaway is assumed to be the sole writer as has been the case for the last few years.
