Climate-change driven catastrophe frequency evident in Q3 results

Leaders in the insurance and reinsurance industry are acknowledging that the third-quarter of 2020 has seen a particularly high number of catastrophe and severe weather loss events, with some noting the influence of climate change.

In reporting his firm’s quarterly results yesterday, the CEO of Bermuda reinsurance firm RenaissanceRe pointed to climate change as a key driver of elevated catastrophe losses for the period.

RenaissanceRe (RenRe) reported a $321.7 million net negative impact to its quarterly results from catastrophes including hurricanes, wildfires and severe thunderstorm activity in the U.S.

CEO Kevin O’Donnell commented, “Another active quarter further confirms the critical role RenaissanceRe plays in helping communities rebuild. Our results for the third quarter reflect the climate-change driven frequency of catastrophic events impacting the world.”

He went on to add that “these are risks that we understand well and are paid to take,” suggesting that RenRe feels it is being compensated for the volatility caused by this frequency of losses, and he also affirmed the company wants to deploy more capital into the marketplace, saying “I am confident we will successfully execute our strategy and profitably deploy significant capital by helping our customers solve their biggest problems.”

Other CEO’s of re/insurers aren’t quite so inclined to place the focus on climate change in their statements, but they are very clear that this has been an extraordinary period of losses for the insurance and reinsurance industry.

Evan Greenberg, CEO of Chubb, highlighted the “record number of natural catastrophes for the insurance industry globally” that occurred during the third-quarter of the year, as his company reported some $925 million of net cat losses from this activity.

Stephen J. Donaghy, Chief Executive Officer, of Florida headquartered Universal Insurance, explained that his firm suffered due to “elevated industry-wide weather events year-to-date.”

Markel’s CEO also cited catastrophe losses as a driver of impacts during the third-quarter for his firm.

While, John C. Roche, president and chief executive officer at The Hanover, cited headwinds from “weather challenges.”

It was always going to be the case that insurance and reinsurance companies would take a hit from the frequency of catastrophe and weather losses in Q3, with the multiple smaller losses also meaning some are less able to claim on their reinsurance.

Looking at ILS fund performance through the period so far, it seems catastrophe bonds have performed particularly well through the third-quarter, delivering strong total returns.

It remains to be seen how some ILS funds focused on collateralised reinsurance fare, as some of these losses are being shared with investors and ILS structures, especially from the larger, global re/insurers with more robust programs in place.

While RenRe’s CEO is confident his company is being compensated for taking on the volatility associated and driven by climate change, it’s true that the firm’s third-party investor base is also supportive of this, as these assets provide efficient additional buffers for RenRe’s losses.

Whether the underwriting itself is fully compensated for the potential effects of climate change on a per-unit of risk basis is less clear and those without as flexible a multi-balance sheet strategy may not feel as well compensated if the frequency trends seen in recent quarters continue, or even accelerate.