Expected to become the second-costliest hurricane ever for the US P&C industry (opens a new window), Hurricane Ian is hitting an already stressed property market which is likely to have repercussions across the globe.
Hurricane Ian made landfall (opens a new window) as a Category 4 major hurricane near Cayo Costa, Florida on 28th September, bringing destructive winds to a broad swathe of central Florida, severe and life-threatening storm surge inundation of 8 to 10 ft (2.4 to 3.0 m) above ground level along with destructive waves across the southwest Florida coastline. Furthermore, Hurricane Ian caused widespread, life-threatening catastrophic flooding, with major to record river flooding, across portions of central Florida.
Data provider RMS (opens a new window) estimates (opens a new window) total private market insured losses from Hurricane Ian to be between USD53 billion and USD74 billion, with the best estimate of USD67 billion. The historical losses are exacerbated by the effects of coastal development, inflation of property values and supply chain challenges.
Already prior to the event, insurers were facing rising claims cost due to increasing prices for raw material, transportation difficulties, supply chain delays, social inflation, litigation, loss adjustment expenses, among others.
The impact goes beyond Florida
The Florida hurricane insurance is the largest worldwide catastrophe risk market and consumes a significant share of the industry’s capital as a result. The losses affect a large number of international insurance and reinsurance players.
Swiss Re, for example, has posted (opens a new window) a third-quarter net loss of around $500M after absorbing preliminary claims from Hurricane Ian of approximately $1.3B. Munich Re expects that Hurricane Ian caused (opens a new window) roughly €1.6B in losses after retrocession. The European continent has already experienced a number of significant natural catastrophe (nat cat) losses this year such as the the French hailstorms (opens a new window) (EUR6B-EUR8B) that struck in early summer, a series of winter storms (opens a new window) (USD3.5B) in February, and two severe heatwaves across Europe, which sparked forest fires.
The impact from nat cat events on reinsurers is therefore likely to create a difficult environment for cedants ahead of 1/1 renewal negotiations, when insurers renew the majority of their property reinsurance programmes.
Inflation affects premium volumes and is driving up insurers’ demand for reinsurance, but reinsurers are unlikely to want to grow their portfolios significantly in this environment. Furthermore, a sizable amount of reinsurance capital is committed to the retrocession market in form of insurance-linked securities (ILS) due to Hurricane Ian. Consequently, reinsurers are set to be more selective in their underwriting approaches, with heightened attention on structuring as well as on price and push for higher retentions. As a result, reinsurance demand is likely to outstrip supply.
Impact on property insurance buyers
The combination of these issues, along with the sheer size of Hurricane Ian, will put significant pressure on insurance industry capacity, deductibles, and pricing. The reinsurance that most insurance companies buy has a direct effect on their cost of capital. This impacts the rates insurers charge to extend capacity and, ultimately, can mean higher costs passed on to property insurance buyers. Nat cat exposed risks will be most affected and these clients are likely to face more restrictions and higher rates, but this trend is likely to affect the whole property insurance market albeit with varying intensity as well as other insurance lines such as casualty.
Trends in property insurance:
Property cat capacity is going to be challenging. In addition to Hurricane Ian, the market continues to talk about secondary/non-modelled perils, and their impairment on historical profitability.
The market trajectory is changing due to the 1/1 reinsurance and retro markets, which are indicating a pullback in capacity and material changes in terms and conditions. Cedants will be both paying more and/or retaining more, which will correlate to retail pricing.
Insurers are also being pressured on valuations from their reinsurance partners to reflect inflation rates.
Capacity for risks with poor risk management w
A hit to an insurer’s underwriting profitability is likely to make it become more selective in its approach.
Clients will benefit from risks that have a proven track record for robust risk management.
Be prepared to introduce competition and be ready to challenge long-standing relationships if necessary
Work with your broker to build a deep understanding of your risk exposures
Consider retaining more risk
Consider alternatives such as parametric insurance or raising captives
Demonstrate your rigor on validating values as underwriters will be demanding it and work closely with your broker
Work with your broker to understand an insurer's pressure points
Consider response to potential restrictions in indemnity periods
Be agile and open to new programme structures
Have a clear renewal strategy that includes a range of plans that respond to unexpected outcomes
More than ever, clear and documented communication is necessary
For further information, please contact:
Richard O`Keeffe – Partner
Retail - Property & Casualty
T: +44 (0)20 7933 2936 | M: +44 (0)7977 9233222
Jennifer Smith ACII – Placement Broker, Vice President
Retail Property & Casualty
T: +44 (0)20 7933 2776 | M: +44 (0)7950 863623