There is likely to be a sharp reduction in available nat cat reinsurance capacity at upcoming renewals following a climate change-induced increase in the frequency and severity of European nat cat events, suggests Clyde & Co’s Eva-Maria Barbosa.
The influence of climate change on natural catastrophe losses is causing reinsurers to reassess their approach to European exposures, suggests Barbosa.
She notes that historically, insurers have viewed European nat cat as a valuable hedge against US hurricane risks.
However, due to the increased gravity of recent events, such as the flooding in Germany and the hailstorms in France, the balance between US and European business is growing unsteady.
Barbosa explains that the convergence of a higher frequency of European cat events, greater severity of losses from climate change-driven perils such as floods, and the impact of inflation on the cost of nat cat claims are creating a perfect storm for re/insurers of European property cat business.
She adds, “With practically no alternative capital available for these risks currently, there is likely to be a sharp reduction in available nat cat reinsurance capacity at upcoming renewals, and this development is likely to extend well into next year.”
Further, Barbosa anticipates that carriers’ profitability is expected to become a significant issue at the renewals as inflation persists.
She suggests that the impact of inflation on the cost of doing business means insured losses will be more costly across all lines of business, leading to an inevitable increase in deductibles on renewing coverage.
Barbosa notes that from the reinsurers’ perspective, it will mean a reduction in the amount of more profitable first-layer business that they can write, skewing the balance of portfolios towards more volatile, large-loss coverage.
