NIBS - 2021 Day 1

NEWS

The Baden-Baden briefing

Many companies use the timing of the Baden-Baden Reinsurance Meeting to launch new products, reports and make other important announcements. Here is a quick overview of the latest such updates.

RenaissanceRe chief executive officer Kevin O’Donnell

Ida and European flood loss estimates may influence pricing negotiations

“RenaissanceRe estimates that losses from certain 2021 catastrophe events will have a net negative impact of approximately $725 million.”

As cedants and reinsurers enter more detailed negotiations around the year-end renewal, reinsurers’ loss estimates for Q3 are under the microscope as these reflect losses from Hurricane Ida and July’s European floods and could have a major bearing on sentiment around the adequacy of pricing.

A number of reinsurers have released pre-tax net catastrophe losses—and the numbers will worry some, potentially adding to the arguments some reinsurers will be making for further rate increases.

Everest Re Group, for example, is estimating total pre-tax net catastrophe losses of $635 million for the third quarter 2021 mainly due to Hurricane Ida and the July European floods.

It expects Hurricane Ida to cost it some $415 million, of which the reinsurance segment will bear $335 million, and the European floods to cost it $220 million, all of which will be borne by the reinsurance unit. All amounts are net of recoveries and reinstatement premiums.

For Hurricane Ida, Everest is estimating insured industry losses of approximately $28 to $30 billion; for the July European floods, Everest is estimating insured industry losses of approximately $12 billion.

RenaissanceRe estimates that losses from certain 2021 catastrophe events will have a net negative impact of approximately $725 milion on its third quarter 2021 results.

This estimate is primarily comprised of net negative impacts of approximately $440 million from Hurricane Ida in August 2021 and approximately $210 million from the severe flooding in north western Europe in July 2021.

In addition, losses from other catastrophe events, as well as aggregate losses associated with these and other events, contributed to the estimated net negative impact.

Meanwhile, Arch Capital Group has revealed a pre-tax net catastrophe hit of $330 to 345 million for the third quarter 2021 across its property/casualty insurance and reinsurance business.

The total includes losses from Hurricane Ida, the European floods and other global events. About two-thirds of the losses relate to its reinsurance business.

The company’s estimates are commensurate with estimated insured losses across the global property/casualty insurance industry in excess of $45 billion in Q3, comprising industry estimates of approximately $30 billion for Hurricane Ida, $12 billion for the European floods and more than $5 billion for other global events.

Cumbre Vieja volcano a reminder on risks of non-modelled perils

“Geologic or seismic risks remain worthy of heightened focus.” Michal Lörinc, Aon’s Impact Forecasting

The ongoing eruption of the Cumbre Vieja volcano, located on the La Palma Island in the Canary Islands archipelago of Spain, should serve as a pertinent reminder of the challenges posed by non-modelled perils, according to a report by Aon.

After what began as a fissure eruption from several vents, resulting lava flows destroyed nearly 1,000 homes and large areas of infrastructure, including approximately 30 km (18.6 miles) of roads. The event prompted evacuation of thousands of residents and will likely result in hundreds of millions of euros in economic losses. No fatalities were reported.

The comment was made in Aon’s latest monthly Global Catastrophe Recap report, which evaluates the impact of the natural disaster events that occurred worldwide during September 2021.

Michal Lörinc, senior catastrophe analyst for Aon’s Impact Forecasting team, said: “The ongoing eruption of the Cumbre Vieja volcano reminds the insurance industry of the challenges posed by non-modelled perils. While catastrophe model coverage has continued to grow, gaps remain in having a full set of modelled solutions to accurately assess various types of risk in all territories.

“Weather and climate perils often generate most headlines, but geologic or seismic risks remain worthy of heightened focus.”

“We are aware of our responsibility as a global reinsurer.” Jean-Jacques Henchoz, Hannover Re

Hannover Re has committed to achieving net zero emissions in its business operations by 2030 and in its reinsurance portfolio and investments by 2050.

To achieve this, however, the reinsurer said it will take a proactive role in developing methods to determine the greenhouse gas emissions of reinsured customer portfolios in property/casualty business. Only in this way will it be possible to actively steer the often large-volume portfolios with sometimes heterogeneous risks towards a net zero target.

In obligatory reinsurance, which covers entire portfolios, the calculation of the carbon footprint is a first major step towards achieving concrete reduction targets. This is considerably more complex here than in facultative reinsurance with its focus on individual risks, the reinsurer said.

In its facultative department specialising in individual risks, it has already been the case since April 2019 that Hannover Re no longer provides coverage for any planned new coal-fired power plants or thermal coal mines.

Moreover, since February 2020 the facultative department has ruled out any new business connected with thermal coal or the associated infrastructure as well as covers relating to oil sands extraction and processing. Project covers for oil and gas exploration in the Arctic are similarly excluded.

“Hannover Re’s clear group-wide commitment to net zero targets and our membership of the Net-Zero Insurance Alliance are the next concrete steps in the progressive expansion of our sustainability engagement,” said Jean-Jacques Henchoz, chief executive officer of Hannover Re.

“The insurance industry is undergoing a transformation towards greater sustainability and we want to shape this transition in a dialogue with our customers and peers. We are aware of our responsibility as a global reinsurer and we shall support industry-wide solutions to manage the consequences of climate change.”

“The property market is already paying attritional losses for non-affirmative cyber coverage.” Rebecca Bole, CyberCube

Cyber exposures accumulating in the US property insurance market could result in $12.5 billion non-physical damage losses and could cause certain carriers’ capital adequacy ratios to deteriorate, a new report by CyberCube, AM Best and Aon has warned.

According to the study, “Spotlight on Cyber: A study of aggregation risk in the US property insurance market”, sufficient cyber risk is accumulating in the US property market to trigger a one-in-100-year loss of $12.5 billion. It noted that a loss of this magnitude would be enough to cause a downward transition of the Best’s Capital Adequacy Ratio (BCAR) for 18 US property carriers.

The analysis revealed that of the 579 property insurers analysed, 12 carriers fell one level in the BCAR, four dropped two levels, and two insurers each fell three levels and four levels respectively. While the BCAR assessments are not the sole determinant of a company’s financial strength rating (FSR), a significant deterioration in it may lead to a downgrade of an insurer’s FSR.

The report concluded that, while current levels of cyber exposure within US commercial property are manageable by the property industry as a whole, the exposure could have ratings impacts for a section of the property market.

CyberCube, AM Best and Aon stated that the report aims to quantify the cyber exposures accumulating in the US property market and calls for further clarification of cyber cover in commercial property policies, explicit underwriting and adequate pricing of the risks associated with cyber events in property policies.

Rebecca Bole, CyberCube’s head of industry engagement, said: “CyberCube’s modelled loss figure of $12.5 billion suggests that the US property market is exposed to $9.5 billion of attritional losses and $3 billion of catastrophic losses in the return period. It is apparent that the property market is already paying attritional losses for non-affirmative cyber coverage.”