Fitch warns of volatility from natcat losses

07-06-2022

Fitch warns of volatility from natcat losses

The sharp increase in inflation and potential for stagflation present additional challenges to US property/casualty (P/C) insurers in the event of a landfalling hurricane, Fitch Ratings says in a special report.

Natural catastrophe losses, particularly severe weather-related events, represent a major source of loss volatility, it says, but capital levels of large re/insurers should absorb near-term large insured losses from an individual hurricane or other catastrophic event.

According to the report, Florida homeowners’ insurance specialists reported continued performance deterioration and a decline in capitalisation levels despite no hurricanes hitting the state since 2018. Many insurers in the state have experienced severe pressure regarding underwriting performance and capitalisation levels, the report adds, 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, it says.

“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,” Fitch said.

“Capital strength provides insurers with an ability to withstand losses from large adverse events, including catastrophes. Industry policyholders’ surplus increased by 40% over the last three years and now exceeds $1 trillion,” it added.

The June/July mid-year 2022 reinsurance renewals will be “challenging” for Florida primary underwriters with reduced reinsurance supply, according to the report, 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.

Fitch currently has a neutral sector outlook on the US P/C insurance industry and the global reinsurance sector. Capital strength of re/insurers should allow them to absorb near-term large insured losses from an individual hurricane or other catastrophic event, it says, but a “confluence of large events” in a short period may lead to capital reductions and ratings pressures.

Fitch, natural catastrophe

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