Property Catastrophe Reinsurance Entering a True Hard Market

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The article hits upon two key elements of the rise in cat cover capacity ‘drying up’ recently.

One obvious and another related factor isn’t covered to the extent it deserves to be included. There is a migration, mainly due to political reasons, of US citizens to Florida, North Carolina, South Carolina, Texas, and away from NY, CA, … which means more exposures that will be considered in Cat Models (CMs hereafter). As real estate in the ‘destination states’ in the path of hurricanes will rise in cost, with inflation AND demand, so will ‘Insured Value’ (IV) considered in CMs. Finally, increased populations in destination states means greater conflagration-per-concentration of exposure (IV) considered in CMs.

Climate change is affecting insurance at about the same rate as it had in the last decade… I think. I don’t think there is an acceleration of the effect recently. Disclaimer: I believe there is climate change, but no man can control it, and it hadn’t burned up the Earth in many past cycles, so it shouldn’t be our ‘fiscal focus’ to stop it. Rather, adaptation should be the goal.

As regards mitigation of the exposure short term, the typical answers have merit; increase in Cat XS retentions, the increase in ROR on cat bonds/ ILS, and the extension of contracts to multi-year, retro or experience rated options will help.

As regards long term mitigation of risk, the geographic changes suggested previously, such as retraction of exposures from flood plains, and converting remaining exposures to warehouses, parks, etc. first comes to mind. Government incentives to move or disperse from densely populated areas need to be created for long-term zoning changes.