Simon Scholfield, Partner, Head of Wholesale P&C at Lockton Companies, has warned that some reinsurers are likely to find themselves retaining more secondary peril exposure, as appetite for property catastrophe risks remains uncertain in the retrocession markets.
Looking at the state of the North American Property market through H1 2022, Scholfield noted that many carriers in the insurance and reinsurance sector are already reducing their property catastrophe risk, after another year where returns-on–equity look set to fall below cost-of-equity.
Extreme weather events were again active through last year, and included Texas Winter Storm Uri and extensive flooding in Louisiana, following Hurricane Ida, as well as deadly tornadoes and catastrophic wildfire in Colorado towards the end of the season.
Accordingly, insured losses from natural catastrophes in 2021 reached USD $billion, the fourth highest since 1970, according to Swiss Re Institute’s preliminary sigma estimates.
Catastrophe risk modeller AIR Worldwide estimated that the global insurance industry should currently expect a long-run annual average loss of $106 billion from natural catastrophes around the world, instead of the actual average loss of the past decade of approximately $75 billion.
Against this backdrop, which has followed two or three years of firming global property rates, Scholfield notes that many carriers now feel they have rebalanced their ‘non-cat’ pricing and are turning their attention towards how to deal with future natural catastrophe volatility.
“As a result, buyers are becoming increasingly interested in exploring alternative protection mechanisms which include parametric and captive solutions, amongst other products,” he commented.
And on the risk side, rapidly escalating inflation, coupled with post-pandemic supply chain issues and now war in eastern Europe, are all causing insurers and reinsurers to re-evaluate their portfolios, Scholfield added.
He concluded: “An interrelated outcome of this, which has returned with a vengeance in the property market, is a closer scrutiny of the accuracy of the metrics being used to assess the adequacy of insured’s asset and business interruption values.”