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Hurricane Ian To Strain Reinsurance Capacity At Renewals: Swiss Re

Hurricane Ian To Strain Reinsurance Capacity At Renewals: Swiss Re

Hurricane Ian To Strain Reinsurance Capacity At Renewals: Swiss Re

Hurricane Ian To Strain Reinsurance Capacity At Renewals: Swiss Re

According to Swiss Re Institute analysts, Hurricane Ian will probably have a large global influence on Florida’s already stressed re/insurance industry.

ALSO, READ SwissRe-Issues Warning Of Inflationary Risks To Re/insurers

Ian’s losses, which are predicted to be in the $50–60 billion range, follow several years of high disaster losses and occur at a time when geopolitical, economic, and environmental concerns are still at an all-time high.

Even before Ian, Swiss Re claims that it anticipated that the market would adjust to underpriced risks and that capital constraints would lead to a convergence of supply and demand for reinsurance at higher prices.

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“Capacity is limited as year-to-date equity markets have declined, interest rates have risen, uncertainty around secondary perils and climate-change effects remains, and there are constraints on new sources of capital,” analysts wrote in a recent report.

Hurricane Ian To Strain Reinsurance Capacity At Renewals: Swiss Re

“This is against a backdrop of six years of elevated insured property losses, after five years of below-average losses. At the same time, higher replacement values and risk re-assessments will likely raise demand.”

Swiss Re notes that, historically, significant catastrophe events have sparked an influx of fresh capital, with alternative capital like insurance-linked securities offering a quick supply response and moderating market cycles.

ALSO, READ Swiss Re Launches Catastrophe Bond Focused Investment Adviser

However, levels of alternative capital, which now accounts for most of the retrocession market, have stalled since 2018 following the high claims from hurricanes Harvey, Irma and Maria in 2017 and above-average catastrophe loss years since.

In particular, ILS structures have become more exposed to loss creep and coverage disputes, and analysts have noted that ILS investors are hesitant to commit fresh capital to natural catastrophe risks ahead of what could be another heavy-loss year, with economic inflation adding to valuation and pricing uncertainty.

Hurricane Ian To Strain Reinsurance Capacity At Renewals: Swiss Re

At the same time, starting in 2021, economic inflation has impacted prices in nominal terms and generated more demand for higher nominal reinsurance limits, in contrast to reinsurance supply trends as some reinsurers have been actively shrinking property cat exposures or exiting the segment altogether.

ALSO, READ Swiss Re Reports Net Loss Of 9M 2022 As P&C Sees Large Nat Cat Claims

“Globally, modeling gaps persist, profitability hurdle rates have risen with higher yields and spreads, and a significant amount of retrocession capacity … is trapped and may not be fully replenished for the 1 January renewals,” Swiss Re analysts concluded.

“As higher exposures encounter shrinking risk appetite, rising prices and tighter terms and conditions are an expected outcome.”


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