Natural catastrophe events caused economic losses of approximately US$320 billion globally last year, of which $128 billion were insured. This is according to estimates by Aon Benfield in its latest Reinsurance Market Outlook report – thus marking 2017 as the third-costliest year after losses in 2011 and 2005.
The insurance recovery ratio of 40% once again highlights the protection gap evident in even the most developed markets. As in 2005, the main driver of losses in 2017 was three Atlantic hurricanes in the third quarter – Harvey, Irma and Maria – which are estimated to have caused economic losses of $200 billion and insured losses of $80 billion.
Record-breaking wildfires in California rounded-out the year. The ultimate size and distribution of claims from these recent events remains uncertain, but it is already apparent that they are manageable and well-spread, said the report.
More CAT exposure laid off into capital markets
The scale of the reinsured portion of these losses is difficult to determine, partly because most providers of reinsurance capacity also write insurance business. However, it is clear that traditional reinsurers were well-capitalised going into these events and that, relative to 2005, more risk was being retained by primary insurers and more catastrophe exposure had been laid-off into the capital markets.
As a result, the losses in 2017 have been absorbed without compromising the availability of reinsurance capacity. Recent events provided the first real test of an alternative capital sector that supplied almost $90 billion of capacity in 2017, up from only $10 billion in 2005.
The report said the sector has therefore proved its worth and come of age as a committed source of reinsurance capacity. It noted that against this backdrop, the January renewals were late, but orderly, with strong competition evident in many sectors. Reinsurance pricing has moved up in lines and territories most affected by recent losses, but Aon Benfield expects this trend to be relatively short-lived, given the amount of new capital entering the sector, and said this may have long-term consequences for the structure of the reinsurance market. A