Multiple Smaller Natural Disasters in 2018 Created ‘Unusual’ Insured Loss Picture: Willis

Article

Insured loss estimates from major natural catastrophes in 2018 totaled roughly $71.5 billion, the highest since 2011’s annual market losses of $120 billion, according to Willis Re.

However, the insured losses in 2018 are slightly less than half of those from 2017, and are marginally above the average annual losses over the last eight years, said the report titled “Summary of Natural Catastrophe Events 2018.”

The eight-year average was driven upwards by peak annual losses of $120 billion in 2011 and $143 billion in 2017, said Willis Re, the reinsurance broker subsidiary of Willis Towers Watson.

In contrast to these previous peak years, where one or two natural disasters contributed a large percentage of the total insured loss, no such major event or events accounted for a large proportion of the 2018 losses, said the broker. Instead, the total arises from a series of smaller and medium-sized loss events. (See Willis Re’s annual comparison chart below).

The largest single insured loss for 2018 was the Camp Fire, which will cost re/insurers between $6.0 billion and $10.75 billion, pushing the likely combined losses from the Carr, Mendocino, Camp, and Woolsey wildfires to about $15-17 billion. The insured loss range for Hurricane Michael is $6.0 billion to $10.0 billion, while Typhoon Jebi in Japan delivered an estimate of $8.5 billion of insured losses.

Willis Re said the largest European loss was winter storm Friederike, with insured losses of about $2.0 billion. No single major insured loss from natural disasters occurred in Latin-America or the Caribbean.

Karl Jones, managing director and head of International Catastrophe Analytics at Willis Re, said 2018 was an unusual year.

“The industry experienced a large number of mid-sized natural catastrophes. Three events 鈥� the Camp Fire, Typhoon Jebi, and Hurricane Michael 鈥� 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,” he noted.

“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 modeled expectations,” Jones added.

“The re/insurance industry has now absorbed more than $200 billion worth of natural catastrophe losses over a two-year period,” said Vaughn Jensen, executive vice president and head of North America Catastrophe Analytics at Willis Re.

“It has been a significant test for both traditional and ILS capacity but overall the sector’s capitalization 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,” he added. “Several sustained storms may also lead to reconsideration of hours clauses by cedents and reinsurers. On the back of this unusual catastrophe experience, we expect to see further reinsurance program adjustments as the year progresses.”

Source: Willis Re