Nature and Biodiversity

Hurricanes, wildfires and natural disasters drive high reinsurance renewal rates

The eye of Hurricane Dorian remains near the city of Freeport, Bahamas in a satellite photograph distributed by the NOAA's National Weather Service September 2, 2019.  National Weather Service/Handout via REUTERS. THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY. - RC1D602483E0

The eye of Hurricane Dorian. Image: Reuters

Lena Masri
Carolyn Cohn
Correspondent, Insurance and Fund management, Reuters
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Insurance

Big insurance losses from hurricanes, wildfires and other natural disasters over the past two years are set to push reinsurance renewal rates higher in January, ratings agencies said.

After falling for several years due to competition and fewer natural disasters, renewal rates have started to climb in the past couple of years and for 2020 are set to rise on average by as much as 5%.

However, as Hurricane Dorian ravages the Bahamas and bears down on the United States, Fitch, Moody's and S&P Global said some rates could jump by much more than that.

S&P said rates would likely rise by around 5%, Moody's expected rises of 0-5%, while Fitch predicted 1-2%, in briefings ahead of the reinsurance industry's annual conference in Monte Carlo which begins on Saturday.

Reinsurers such as Swiss Re, Munich Re and the Lloyd's of London market help insurers share the risks of disasters in return for part of the premium.

"It's not a hard market but it's a hardening market, there's more positive momentum," Ali Karakuyu, lead analyst at S&P Global, told a media briefing.

Fellow analyst David Masters said the industry was likely to see "mid-single digit price increases" as a result.

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Insurers are increasingly concerned about the impact of bad weather linked to climate change, with an increase in wildfires in California among the most costly in recent years, something S&P said could see rates there jump 30-70%.

"This market remains in disarray, which will fuel further rate increases," a slide from the S&P presentation said.

Analysts at UBS estimated that the reinsurance industry is in an excess capital position of around $30 billion, but that an estimated $70 billion of natural catastrophe losses in 2019 could erode this excess capital.

Moody's analysts said lines of business that have been performing badly over the last few years, for example due to losses related to hurricanes in the United States, would see price rises in the mid-teens.

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