Amidst speculation over whether the sizable gap between re/insurers’ reported losses and industry estimated losses will be filled, half of conference attendees polled at the 2017 Bermuda Reinsurance Conference said they expect total insured losses to continue to grow to match industry estimates of U.S. $80-100 billion.
Q3 re/insurance losses could hit records at an estimated $100 billion, but with just $30 billion of this reported in company losses, so far, investors are concerned over the potential knock-on consequences the giant $70 billion loss gap could have on the market.
“We played this guessing game back in 2005 with Katrina,” Parry of Lloyd’s said, adding that the polling response indicates that “people are largely discounting the top end of the modeling firms’ estimates. With so much uncertainty, it’s very difficult to reach any conclusions at this stage.”
Belden at Travelers said that models spit out “very precise answers that are clearly false in their precision,” adding that estimates can often be premature of they occur near the end of a reporting period – thus requiring an estimate sooner than may be practical.
“We always start with remembering they’re just models – they’re not representative of reality,” he said, adding that the rules of financial reporting make catastrophes at the end of a quarter more difficult to estimate because of their proximity to the reporting period.
“Is it good that we put out numbers early? It’s really, really hard to know,” said Belden.
Parry commented models are “a pretty good starting point” from which insurers and reinsurer adapt their own risk profile.
A recent Morgan Stanley report said the gap could lead to carriers’ having to significantly increase their current estimates, or could mean industry losses are much smaller than risk modellers thought, which would dampen the widely predicted potential pricing upturn within affected lines of business.