Reinsurers Spared from Large Cat Losses in 1Q: Fitch

April 1, 2014

Reinsurers will report solid underwriting profitability for the first quarter of 2014 as catastrophe loss events were limited. According to Fitch Ratings, global reinsurers’ results are expected to be in line with those reported in 2013 given that the industry has not suffered a significant catastrophe loss event since fourth quarter of 2012, when superstorm Sandy hit.

The largest insured natural catastrophe losses for the period were from severe winter storms in the United States and flooding and winter storms in the UK. Fitch said it believes that losses from these events will be “manageable for the (re)insurance industry, especially as the most exposed firms are typically large, well-diversified operators with the ability to offset losses through other profitable lines and strong capital.”

Reinsurers will only have to shoulder a minority of the losses, as these events were not costly enough to trigger insurers’ excess of loss property catastrophe reinsurance treaties, Fitch said. Losses for reinsurers will generally be limited to facultative, per risk and pro rata quota share reinsurance treaties. In the case of the U.S., this was partly due to increased retentions by primary insurance companies over the last few years, as improved capital positions have allowed insurers to retain more risk.

The Insurance Information Institute reported that winter 2014 could rank among the top five in U.S. winter-storm insured losses since 1980. January losses alone totaled $1.5 billion as a polar vortex driven by an unusually strong jet stream pushed temperatures below freezing in every state of the country, a rare event. The significant snowfall and record severe cold resulted in increased claims for both personal and commercial lines insurers due to roof collapses, power failures, frozen and burst pipes, auto accidents and business interruption.

Once the insured losses from all the 2014 winter storms are aggregated, it will push the total for the year in the U.S. above the $2 billion of losses registered from winter events in 2013, according to Fitch.

The Association of British Insurers estimated UK flood insured losses will cost the industry £G1.1 billion, due to an historic amount of rainfall that was also the result of the abnormal strength of the jet stream. While the wind strength of individual storms was not exceptional when compared with others in recent years, the rapid succession of storms and accumulated rainfall was.

According to the Met Office, England and Wales recorded the wettest winter since records began in 1766. As a result, Fitch said, insurers have received a significant amount of flood and storm damage claims for losses to homeowners, businesses and vehicles, but these are considered to be manageable.

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