Reinsurance News

WTW estimates industry cat losses at $71.5bn for 2018

16th January 2019 - Author: Matt Sheehan

Global insurance and reinsurance broker Willis Towers Watson (WTW) has estimated that major natural catastrophes cost the re/insurance industry $71.5 billion in 2018, with losses primarily driven by smaller events.

Willis Towers WatsonThis figure is only slightly above the annual average since 2011 but the third-highest total during this period, according to WTW’s Summary of Natural Catastrophe Events 2018 report, falling behind losses of $120 billion in 2011 and $143 billion in 2017.

The report noted that in previous peak years, one or two natural disasters contributed a large percentage of the total insured loss, whereas losses in 2018 arose from a series of smaller and medium-sized catastrophe events.

WTW’s loss total is significantly lower than recent estimates from Munich Re, which pegged the industry’s catastrophe losses at $80 billion in 2018, almost double the 30-year average of $41 billion.

Similarly, Swiss Re recently put economic losses from catastrophes at $155 billion in 2018, with re/insurers estimated to have covered around $79 billion.

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Re/insurance broker Aon also claimed that re/insured catastrophe losses over the last two years totalled $230 billion, with reinsurers absorbing roughly 25% of this figure.

WTW estimated that the largest single insured loss in 2018 was November’s Camp Wildfire in northern California, which is likely to cost re/insurers between $6.0 billion and $10.75 billion, according to the report.

This compares with other recent estimates that put industry losses from the Camp Fire at $12.5 billion and economic losses at $16.5 billion, as shown in our major industry loss directory.

Combined with the damages from California’s Carr, Mendocino and Woolsey Fires this year, WTW expects insured losses to reach around $15 billion to $17 billion.

The report also put re/insured losses resulting from Hurricane Michael in the range of $6.0 billion to $10.0 billion and Typhoon Jebi at $8.5 billion, which compares with Munich Re’s estimates of $10 billion and $9 billion, respectively.

In Europe, WTW put insured losses from winter storm Friederike at $2.0 billion, while no single major insured losses were recorded from natural disaster in Latin-America or the Caribbean over the year.

Karl Jones, Managing Director and Head of International Catastrophe Analytics at Willis Re, commented on the report: “The industry experienced a large number of mid-sized natural catastrophes. Three events – the Camp Fire, Typhoon Jebi, and Hurricane Michael – have all reached at least the high single digit billions in insured losses, but only the Camp Fire seems likely to exceed the level of $10 billion.

“However, a large number of smaller, billion-dollar losses, principally storms, has added up to make 2018 a costly catastrophe year. With the exception of the major California wildfires, these losses are well within modelled expectations.”

Vaughn Jensen, Executive Vice President and Head of North America Catastrophe Analytics at Willis Re, also stated: “The re/insurance industry has now absorbed more than $200 billion worth of natural catastrophe losses over a two-year period. It has been a significant test for both traditional and ILS capacity but overall the sector’s capitalisation remains strong.”

“The distribution of smaller catastrophes in 2018 has given retrocessionaires and excess of loss reinsurers some breathing spaces, with the clear exception of aggregate covers as well as accounts with a concentration of exposure in California,” Jensen continued.

“The frequency of catastrophe losses over the last two years continues to result in many primary insurers rethinking their strategy around retention levels. Several sustained storms may also lead to reconsideration of hours clauses by cedants and reinsurers. On the back of this unusual catastrophe experience, we expect to see further reinsurance program adjustments as the year progresses.”

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