Reinsurance News

Reinsurer nat cat experience year-to-date has been mixed, says JP Morgan

15th September 2022 - Author: Kane Wells

According to a report from JP Morgan, Europe’s big four reinsurers had mixed natural catastrophe experiences during the first half of 2022.

J.P MorganIt notes Munich Re is the only company to see losses below expectations at ~60% of the H1 budget, with only ~30% of the full-year budget utilized so far. Hannover Re, SCOR and Swiss Re had nat cat losses above expected 1H budgets.

The report states that it was an active period for nat cat activity, with industry cat losses of $35bn, higher than the 10-year average of $29bn but lower than the prior year’s $46bn.

Secondary losses drove a major share of losses once again, says JP Morgan, at an estimated ~80%, mainly from severe convective storms.

As a result, Munich Re has the most significant portion of the annual nat cat budget left for H2 at 70%, with Hannover Re at 56%, Swiss Re at 50%, and SCOR at 38%.

Stratumn, by SIA Partners

It adds that where budget seasonality is disclosed (Hannover Re, Swiss Re), a larger share of the budget tends to be allocated to Q3, given that it coincides with hurricane season.

Based on the allocated and available budgets, JP Morgan estimates implied absorbable market loss by company averages at $22bn, based on their Q3 budgets.

The report notes, “As a comparison, this is roughly equivalent to the insured losses (2021 inflation-adjusted) from the 7th costliest hurricane for the industry, Hurricane Ike, in 2008.”

“Looking at the implied absorbable loss based on actual remaining budgets for H2, we believe Munich Re is able to absorb the most industry losses at ~$50bn despite historically taking on a higher market share.”

JP Morgan affirmed that 2022 season forecasts have been updated to reflect the current quieter experience, with a slight decrease in the average expected number of storms.

The consensus average is now forecasting an average of 16 named storms, 7 hurricanes and 3 major hurricanes, which compares to previous average forecasts of 18, 9, and 4, respectively.

J.P. Morgan meteorologist, Paul Janish, has most recently updated his season forecasts to 12/6/1 vs 18-20, 9, and 4-5, respectively.

Though a recent Moody’s investors service report affirmed that natural catastrophes weakened Europe’s big four reinsurers’ results in H1, adding that with the peak North Atlantic hurricane season still to come, there is a risk that they might do so again in H2.

JP Morgan stated, “While season forecasts have been slightly revised downwards, consensus still expects an above-average season compared to the last 30 years.

“A lower number of expected named storms does not necessarily suggest a less costly season and vice versa, as it often takes just one major hurricane to cause material losses for the industry.”

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