The insurance industry will pay record claims of US$135 billion from last year’s spate of natural catastrophes, according to a report published by Munich Re.

Further, Hurricanes Harvey, Irma and Maria (HIM), the Mexico earthquakes and wildfires in California created overall economic losses (which include uninsured losses), of US$330 billion, said Munich Re in an overview of natural catastrophes in 2017.

Munich Re said this is the second-highest figure ever recorded for natural disasters, which was only surpassed in 2011, when the Tohoku earthquake in Japan and floods in Thailand contributed to overall losses of US$354 billion in today’s dollars.

The overall loss figure of US$330 billion, for all types of natural disasters, was almost double the 10-year, inflation-adjusted average of US$170 billion, said Munich Re, noting that insured losses were almost three times higher than the average of US$49 billion.

For its report, Munich Re tracked a total of 710 natural catastrophes, which was significantly higher than the average of 605.

The U.S. share of losses in 2017 was even larger than usual: 50 percent, compared to the long-term average of 32 percent. When considering North America as a whole, the share rises to 83 percent, Munich Re noted.

Pattern of Extreme Weather Expected

“…[S]ome of the catastrophic events, such as the series of three extremely damaging hurricanes, or the very severe flooding in South Asia after extraordinarily heavy monsoon rains, are giving us a foretaste of what is to come,” said Torsten Jeworrek, Munich Re board member responsible for global reinsurance business. “Because even though individual events cannot be directly traced to climate change, our experts expect such extreme weather to occur more often in future.”

Abundance of Capital

While the reinsurance industry had hoped the relentless soft market would be alleviated by last year’s expensive catastrophes, rate increases were relatively measured during the January renewals — mostly as a result of the abundance of reinsurance capacity provided by capital market investors backing insurance linked securities (ILS).

This fact was highlighted in two additional reports that were published this week by Willis Re and JLT Re. (Editor’s note: Insurance Journal briefly covered these reports on Jan. 2).

In Willis Re’s renewal report, titled “Willis Re 1st View – January 1, 2018,” James Kent, global CEO Willis Re, confirmed that last year’s catastrophe losses stopped a further decline in risk-adjusted rates in most markets and classes.

However, the continued supply of capital has prevented “widespread increases in risk-adjusted rates particularly on loss free portfolios,” he said

The good news is that there has been a general stabilization of rating levels across a wide range of classes — not just property catastrophe — as well as pricing improvement on some primary classes of business, added Kent. He noted that this provides a better trading environment for reinsurers heading into 2018 than was the case before the catastrophe events.

A renewal report from JLT Re also highlighted the effects of plentiful levels of capacity on the January renewals.

David Flandro, global head of Analytics, JLT Re, said: Pricing pressures were offset by capital deployments after HIM “through channels such as new collateralized vehicles, post-event funds, new catastrophe bond issuances and increased stamp capacity and pre-emptions. Investors responded to opportunities in both the reinsurance and retrocession markets, resulting in the replenishment of a significant portion of lost capacity in time for renewals.”

Ed Hochberg, chief executive officer, JLT Re in North America, noted that in the U.S., rates renewed flat to up 5 percent for loss-free programs and up 10 percent to 20 percent for loss-affected business.

“Flat to moderately up renewals were typical for international property-catastrophe business, reflecting more benign loss activity in Europe and Asia. Even with these increases, the cost of property protection remains competitive with global property-catastrophe pricing approximately 30 percent below 2013 levels,” he said.

Willis Re noted that property reinsurance rates rose 20-40 percent in loss-affected areas in the Caribbean and 5-10 percent in catastrophe hit areas in the United States and Latin America.

On the other hand, despite Canadian property reinsurers’ expected combined ratios of below 90 percent, there was still pressure on global property catastrophe renewal capacity — driven by HIM — and “continued consideration toward (reinsurance) losses emanating from the 2016 Ft. McMurray wildfires,” which resulted in risk-adjusted rate increases of 10 to 30 percent for a number of buyers, said Willis Re.

Related:

Property Reinsurance Rates Rise Less Than Expected in Jan. 1 Renewals