A wave of natural disasters in the third quarter of 2020 will likely drive up catastrophe reinsurance prices after causing the highest quarterly losses in years for property and casualty insurers, Fitch Ratings said.
The New York-based credit ratings agency said in a report Thursday that reinsurers are expected to push up rates even though they went into the catastrophe-laden quarter with strong capital. Although the third quarter typically sees heavy insurance losses from events such as hurricanes and wildfires, severity has increased in recent years.
“The heightened frequency of catastrophe events in 2H20 are likely to continue to put upwards pressure on reinsurance rates at the upcoming January 2021 renewal period,” Fitch said.
Reinsurance prices have been rising since 2017 when natural catastrophes picked up and caused significant damage, including the most expensive hurricane season on record that caused nearly $300 billion in wreckage with Hurricanes Harvey, Irma and Maria and others.
Aggregate reinsurance products meant to protect against high-frequency, small- and medium-sized events have been particularly exposed, Fitch said. It referred to a quarterly earnings commentary of Travelers Cos., which said the U.S. insurer nearly reached its annual aggregate reinsurance deductible halfway through the year.
Hurricanes Laura and Sally, wildfires in California and Oregon and a derecho windstorm across the U.S. Midwest were among the largest drivers of an estimated $25 billion in insured losses through the quarter, according to Fitch. It is the most expensive quarter by way of natural catastrophes since the third quarter of 2017.
It followed a relatively mild first half of 2020 when catastrophe-event costs were about $26 billion, 32% below the 10-year average.
The high third-quarter costs were acutely felt by insurance and reinsurance carriers with large catastrophe exposures. This week, AXIS Capital projected it would take up to $255 million in overall losses in the third quarter, while Arch Capital estimated it would suffer $210 million in catastrophe losses.
These insured losses are stacking on top of the damage being done by the COVID-19 pandemic, which imposed its own losses onto insurers and reinsurers and led credit-rating agency Moody’s to assign the global reinsurance industry a “negative” outlook.
“This accumulation of losses is expected to exceed many individual company catastrophe budgets and further pressure full-year 2020 earnings,” Fitch said.