2022 were highly active in many territories around the world. Significant natural hazard events occurred in Western and Central Europe (Windstorms Dudley/Ylenia, Eunice/Zeynep, and Franklin/Antonia), Australia (East Coast Floods), Japan (March 16 Earthquake), and the United States (Severe Convective Storms).
Capital strength of (re)insurers should allow them to absorb near-term large insured losses from an individual hurricane or other catastrophic event, but a confluence of large events in a short period may lead to capital reductions and ratings pressures.
The first quarter is typically the quietest of the year, though 2022 marked the sixth consecutive year to record more than $10 billion in insured losses.
According to Aon’s Reinsurance Market Outlook report, the preliminary Q1 overall insured loss, including those from public and private insurance entities, was $14 billion. However, it is important to state that this total is expected to be upwardly revised, perhaps considerably, in the coming weeks and months. This type of loss development is standard and expected in the aftermath of larger scale events.
No single event caused this upswing, but rather an accumulation of catastrophes, which included hurricanes, floods, tornados and freezes, well exceeded the $70 billion average annual loss since 2011.
Insured natural catastrophe losses for 2021 are estimated at between $105 billion and $120 billion, according to several sources, making it the third highest natural catastrophe loss year since 2011.
First Quarter Insured Losses in 2022
Preliminary aggregated regional losses included: EMEA ($5 billion), APAC ($4.5 billion), United States ($4.2 billion), and the Americas ($0.2 billion). There were multiple individual events which surpassed the billion-dollar threshold: Windstorm Eunice (Europe), the March 16 offshore Japan Earthquake, and Australia’s East Coast flooding. A record number of March tornadoes in the United States aided in a multi-billion-dollar aggregate loss total for severe convective storms alone.
The second quarter is typically dominated by severe convective storm losses in the US, which have averaged $12 billion in Q2 alone during the past decade.
The third quarter is typically the most expensive for the industry and is driven by landfalling tropical cyclones – notably in the Atlantic Ocean or Western Pacific Ocean basins.
Florida continues to deal with a challenging insurance market even though it has not endured a major hurricane landfall since Hurricane Michael in 2018 (Category 5). Numerous tropical storm landfalls in the previous three years and increased thunderstorm-related events due to more frequent instances of La Niña have continued to aggregate state-wide losses.
This in combination with a substantial increase in insurance-related claims litigation following Hurricanes Irma (2017) and Michael, including topics surrounding assignment of benefits (AOB) or other third-party activities, have resulted in one of the most challenging renewal seasons in years for the state.
Insurer Capital Sufficient to Withstand Hurricane Season
The sharp increase in inflation and potential for stagflation present additional challenges to property/casualty (P/C) insurers in the event of a landfalling hurricane, Fitch Ratings says.
Natural catastrophe losses, particularly severe weather-related events, represent a major source of loss volatility, but capital levels of large (re)insurers should absorb near-term large insured losses from an individual hurricane or other catastrophic event.
Early season forecasts predict that the North Atlantic Basin will again experience above-average hurricane frequency in 2022 relative to long-term results following the very active hurricane seasons of the past two years.
Number of U.S. Hurricane Landfalls by Year
Capital strength provides insurers with an ability to withstand losses from large adverse events, including catastrophes. Industry policyholders’ surplus (PHS) increased by 40% over the last three years and now exceeds $1 trillion.
Property/Casualty Industry Surplus, Net Income
Florida homeowners’ insurance specialists reported continued performance deterioration and a decline in capitalization levels despite no hurricanes hitting the state since 2018.
Many insurers in the state have experienced severe pressure regarding underwriting performance and capitalization levels, leading to the liquidation of a number of carriers. As a result, policyholders have found it increasingly difficult to find private market homeowners’ insurance coverage.
The June/July mid-year 2022 reinsurance renewals will be challenging for Florida primary underwriters with reduced reinsurance supply, reflecting recent adverse loss experience. Rate increases are expected to easily reach the double-digit levels, with many reinsurers limiting capacity in Florida to curtail volatility.
The first quarter is typically the quietest of the year, though 2022 marked the sixth consecutive year to record more than USD10 billion in insured losses. The preliminary Q1 overall economic loss was $32 billion. Public and private insurers covered $14 billion of this total. However, it is important to remind that these totals are expected to be upwardly revised, perhaps considerably, in the coming weeks and months. This type of loss development is standard and expected in the aftermath of larger scale events.