Models in the headlights as 2021 losses mount, says Gallagher Re

03-02-2022

Models in the headlights as 2021 losses mount, says Gallagher Re

shutterstock/Mike Mareen

Insured losses from major natural catastrophes in 2021, excluding Covid-related claims, have reached US$116 billion, the third-largest total since 2011, according to a report from reinsurance broker Gallagher Re. The figure is almost two-thirds (63%) higher than the average $71bn annual loss since 2011. It trails only 2017 ($143bn) and 2011 ($120bn).

Extreme weather-related events in the US and the second most severe flood event ever in Europe contributed to the total. Tropical cyclones accounted for 35% of the overall loss, and severe thunderstorms 25%.

The largest single loss event was Hurricane Ida in August, which cost insurers roughly $37bn. However, 2021 was also marked by several unusual mid-sized catastrophe events as well, the report notes. These included winter storms in the southern US in February, including in some states that do not typically see extended periods of cold weather. Later winter storms affected much of the contiguous US, and severe convective storms hit the Midwest in December.

With 21 named storms, the 2021 North Atlantic hurricane season was the third most active on record, and the sixth consecutive year above normal. It was also the second successive year when NOAA’s bank of 21 of storm names was exhausted.

In Europe, Storm Bernd brought the largest loss-causing event in mid-July, causing over $13bn in insured losses, focused on Germany and Belgium. The former saw its largest flood loss on record.

Latin America and the Caribbean escaped, however, without significant insured catastrophe events, while Asia’s 2021 cyclone season saw no typhoon make landfall in Japan.

In total, North America was responsible for 68% of the loss, with most of the rest from Europe, the Middle East, and Africa (23%).

“With the large loss experience in 2021, catastrophe models are firmly in the market’s headlights,” said Yingzhen Chuang, Gallagher Re’s regional director of international catastrophe analytics. “They remain pivotal to enabling conversations around pricing adequacy, secondary perils, climate change, and systemic connectivity of risk, but it has become essential to ensure we understand what models can and cannot contribute to the conversation.

“By necessity, summarising a complex global picture requires some simplifications. However, it is clear that carefully contextualising global loss experience is essential to an industry founded on managing volatility and uncertainty.”

James Vickers, international chairman for reinsurance at Gallagher Re, added: “It was a heavy year for natural catastrophes, despite the absence of a very significant single loss event. Notably, claims originating from secondary perils were substantial. That perhaps calls for an industry-wide redefinition of the phrase, and is certainly a phenomenon that underwriters are paying close attention to.”

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