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Latest News on NAT CAT

1. Nat CAT insured losses reach US$11bn in the region in 2022

Preliminary data totals across Asia Pacific showed an insured loss for 2022 from Nat CAT events at $11bn, according to Gallagher Re.

Globally, total insured losses are estimated at $140bn, of which $125bn are covered by private insurers and $15bn by public insurance entities (example: US National Flood Insurance Program), the global reinsurance broker says n the “Gallagher Re Natural Catastrophe Report of 2022” released yesterday. The report notes that 2022 became the fifth year since 2017 for total insured losses to cross the $100bn threshold.

The insured loss total for Asia Pacific in 2022 is consistent with those seen in 2021 ($11bn) and 2020 ($14bn), Gallagher Re says. Lower industry losses in the last three years (2020–2022) followed a decade where the region was marked by significant and market-changing events such as the Thailand floods (2011), Tohoku earthquake and tsunami (2011), New Zealand earthquakes (2010/2011), Typhoon Jebi (2018), and the Australian bushfire season of 2019/2020.

Much of the market commentary has focused on the effects of secondary perils and the ongoing need to further improve natural catastrophe modelling in the region, along with more proactive risk mitigation and assessment methods.

Major Nat CATs in 2022 in APAC

The pronounced insurance gap in particular countries also garnered much attention again last year—not least in Pakistan, where historic flooding led to an estimated $15bn in direct economic damage, but the insured outcome was negligible due to very limited insurance take-up.

Drought was evident in various areas of Asia: China’s Meteorological Administration (CMA) noted the hottest summer on record dating to 1961, with 265 weather stations setting all-time heat records in August alone.

In addition, the Yangtze River, the longest river in Asia and the third-longest globally, reached its lowest summer/peak monsoon season water height in 150 years of record-keeping. India’s Meteorological Department also noted that the country had experienced its hottest March, third-hottest April and second-hottest December in 122 years.

A relatively quiet Western North Pacific Typhoon Season saw manageable damage reports, with the exception of Nanmadol and Talas in Japan, Hinnamnor in South Korea and Super Typhoon Noru in the Philippines. Overall activity in the basin was slightly below average for much of the year, including the number of landfalling events in Japan. Although Nanmadol brought strong winds and heavy rainfall, resulting in some flooding and landslides, its impact was manageable, largely because the storm moved over an area of lower-value asset concentration compared with typhoons in 2018 (Trami, Jebi) and 2019 (Faxai, Hagibis).

Claims data as of 30 November 2022 from the General Insurance Association of Japan put the combined insured loss from Nanmadol and the smaller Typhoon Talas, which also hit Japan in September, at $935m. Further loss growth was anticipated with more claims filed and processed.

2. Hesitant capital remains sidelined amid property CAT losses and higher inflation

The ongoing gap between return-on-equity ratios and the overall cost of capital is one of the key drivers for higher reinsurance prices going forward, according to a new AM Best report capturing the views of panelists from a recent reinsurance industry briefing.

The Best’s Market Segment Report, “Hesitant Capital Had Looming Role at 1 January Reinsurance Renewals,” is based on a briefing last week in which a panel of AM Best analysts and industry executives discussed pricing pressures around the 1 January 2023 reinsurance renewal season.

Persistently high levels of losses and volatility from small and medium-sized natural catastrophes, coupled with rising inflation and geopolitical concerns, have made property catastrophe exposures a less favourable play for reinsurers. By AM Best’s estimates, the reinsurance segment has been generating return-on-equity ratios of approximately 4-5%, in a market where the cost of capital is at least twice that. That cost of capital is due to increase even further, according to one of the panellists, Mr Carlos Wong-Fupuy, senior director, AM Best.

“Despite improving pricing trends and tighter terms and conditions, new capital is taking a very cautious approach,” Mr. Wong-Fupuy said. “While the market remains well capitalized, it’s important to note how capital is being deployed and that significant amounts remain on the sidelines.”

Mr. Wong-Fupuy was joined on the panel by Somers Re CEO Liz Cunningham and Mr. Aditya Dutt, president of Aeolus Capital Management, a Bermuda-domiciled specialist manager of reinsurance risk.

Ms. Cunningham said property writers experienced the heaviest hit at 1 January renewals, with catastrophe-exposed lines up 50-100% generally.

Mr Dutt said some factors influencing the capital inflow are beyond the sector’s control, such as the rapid interest rate changes and the estimated 20% drop-off in equity markets, all within the past 12 months alone. He cited the difference in economic conditions relative to the past 30 years coupled with the increased incidence of large catastrophe events.

Additional topics of discussion during the briefing included the future role of insurance-linked securities in underwriting property catastrophe exposures, the impact of economic instability on market conditions and whether reinsurance pricing and results have stabilized enough to persuade new investors and capital to enter the market. AM Best maintains a stable outlook on the global reinsurance segment.



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