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How exposed is the insurance industry to storms?

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UMike said:
Despite all the storms and floods all the insurers are doing really well atm.

A big drop when the reality hits?
Click to expand...
If an insurance business is well run, it shouldn’t really bother them that much, not really much difference between an insurance company having some extra claims and an oil business seeing a summer with lower oil prices. It doesn’t really mean anything in the long run (if they are well run and price their risk correctly)
 
I know I harp on it but the last time I saw the number >$0.20 in the $1 of premiums goes on re-insurance. So make of this what you will

Reinsurance Market Outlook - Actuaries Digital

As we look to January 2023 renewals, we anticipate a rough ride as macroeconomic volatility and changing loss trends alter the supply and demand dynamic. Capacity constraints, high inflation, and secondary perils are likely to result in a tougher renewals period for reinsurance buyers. Global...
www.actuaries.digital
 
UMike said:
Despite all the storms and floods all the insurers are doing really well atm.

A big drop when the reality hits?
Click to expand...
from my short time in the market ( about ten years ) insurers ( share prices ) do well in storm season as it reminds folks how essential ( not in my opinion but the masses disagree ) they are ,

what seems to hit them is re-insurer price hikes and big moves in bond prices ( because they often park premiums in bonds to get some yield ) , and of course cap. raises
 
Very challenging analysis. Couple of points stood out. The huge rise in severe storm damage losses is a red flag and ceratinly highlights this particular event as a major factor in damage and Insurance payouts

1) Climate change is seen as a major risk factor for the reinsurance and insurance industry, in particular with the increased frequency and severity of weather-related events in recent years. S&P analysis found reinsurers’ estimates of their exposure to natural catastrophe risk could be underestimated by as much as 33 to 50 percent. More frequent and extreme weather events will have a direct impact on the (re)insurance industry, while a failure to properly account for the impact of climate change in modelling and pricing could lead to significant unexpected volatility in earnings and capital, resulting in pricing corrections. Climate change is considered a key factor in 19 of the top 21 reinsurers rated by S&P. In 2021, AM Best issued a report stating around 13 percent of downgrades were related to climate change.

2) The first six months of 2022 were marked by large-scale disasters on nearly every continent that led to above-average losses for the insurance industry

The cumulative charts in Exhibit 3 below show secondary perils continuing to dominate the costliest 1H economic and insured loss perils during the past ten years. Primary perils, including earthquakes and tropical cyclones, have been moderately lighter through the peak of tropical cyclone season, typically in Q3. There has been a consistent trend in accelerating severe convective storm losses that are tied to continued exposure growth and more impactful peril behaviour. Also, despite the high cumulative economic impact of flooding, insured losses remained significantly lower as insurance coverage (mostly in Asia) stays low.

Exhibit 3: Cumulative Economic & Insured Losses by Peril up to 1H 2022 ($ billion)

 
I Love the Share market because the irrational idiocy of climate change hardly gets a mention.

Jan 2022 QBE was $12 - now $14.8
Jan 2022 IAG was $4.2 - now $5.6

So we can rule that out if we follow the science of $
 
UMike said:
I Love the Share market because the irrational idiocy of climate change hardly gets a mention.

Jan 2022 QBE was $12 - now $14.8
Jan 2022 IAG was $4.2 - now $5.6

So we can rule that out if we follow the science of $
Click to expand...
yes the share prices of the insurers ( IAG , QBE and SUN ) seem to defy logic , but then their profits are all about their ability to park premiums profitably ( and resist paying out claims without destroying faith in need in society )

BTW climate change is a vehicle for an agenda , not a real science , but then science is rapidly turning into a consensus bubble

( i hold QBE , SUN , IAG and TWR , they take a bit of active investing , but can be worthwhile if you can tolerate erratic div. payouts )
 
There has been previous rumblings in mainstream media concerning increasing insurance costs. Here is another:

'Absolutely extreme': Pensioner 'sick to my stomach' as home and contents insurance premiums quadruple

Fran Ross has never made a home and contents insurance claim and says her property isn't at significant risk of natural disasters. The Brisbane pensioner's premiums are still going up by close to 400 per cent.
www.abc.net.au

One of the issues, and I can appreciate the limitation, is articles have to be snappy. They don't go into the depths and expand on the background to the extent as per @basilio's Post #8 as their audience would simply lose interest and not bother reading the article in full - at least that's my theory.

The Actuaries Institute has published a couple of papers on this - and other subjects - which are well worth a read if you're interested.

Media Releases and Enquiries

actuaries.asn.au

It isn't as if rising insurance costs have come as a surprise to many organisations. It has been known for a couple of years. It's the general public which remain unaware of the issues until they get their insurance renewal. Same attitude applies to other subjects as well. To be fair many are too busy going about their lives and to keep pounding them with what is essentially a negative outlooks wouldn't be all that helpful.
 
Belli said:
It isn't as if rising insurance costs have come as a surprise to many organisations. It has been known for a couple of years.
Click to expand...

Munich Re highlighted the risks of CC ( Hand of God ?...) back in the 1970's and has been shaping policy since then. Insurance companies and actuaries take the longest term view of risk. They can't afford not to.

Shaping a more balanced world

www.munichre.com
 
Brazil is dealing with the mother of all flooding. Apart from the deaths and human misery the extent of flooding in large cities is stark. I can see some very heavy insurance claims.

Flooding death toll in south Brazil rises to 75 as over 100 people remain missing​

Officials in Rio Grande do Sul state say more than 80,000 have been displaced by record water levels

Ashifa Kassam and agencies
Mon 6 May 2024 02.50 AESTFirst published on Mon 6 May 2024 02.11 AEST


Seventy-five people are now known to have died in the flooding in Brazil’s southern Rio Grande do Sul state, while more than 100 people remain missing, local authorities said on Sunday.

The state’s civil defence authority said 101 people were unaccounted for and more than 80,000 had been displaced after record-breaking floods swept across the state, which borders Uruguay and Argentina.

Brazil’s president, Luiz Inácio Lula da Silva, arrived in Rio Grande do Sul on Sunday, along with most members of his cabinet, to discuss rescue and reconstruction works with local authorities.

Rescue workers are continuing to race against the clock to save people from raging floods and mudslides. Using four-wheel-drive vehicles and at times jetskis, rescuers made their way through waist-deep water, searching for those who had been left stranded by the rising waters.

Video posted online by Lula appeared to show a helicopter dropping a soldier on the roof of a house, and the soldier using a brick to pound a hole in the roof and rescue a baby wrapped in a blanket.

Flooding in the centre of Porto Alegre, Rio Grande do Sul state after people were evacuated on 5 May. Photograph: Renan Mattos/Reuters
Storms have affected almost two-thirds of the state’s 497 cities, leading to landslides, destroyed roads and collapsed bridges as well as power outages and water cuts. More than a million people lacked access to drinking water, according to Brazil’s civil defence agency.
 


That doesn't even come close to 'the mother of all flooding'.




List of deadliest floods - Wikipedia

en.wikipedia.org
 
Your quite right John. In term's of loss of life and historical records these Brazilian floods are not up there.
My point was the very extensive flooding of urban centres and the insurance claims/costs that will eventuate. We saw that in Australia in the last few years. I suspect Brazil and the re insurance industry will be seeing similar outcomes.

On top of that the local and Federal Governments in Brazil will be facing huge repair bills when the floods recede.
 
UMike said:
I Love the Share market because the irrational idiocy of climate change hardly gets a mention.

Jan 2022 QBE was $12 - now $14.8
Jan 2022 IAG was $4.2 - now $5.6

So we can rule that out if we follow the science of $
Click to expand...
If climate change increases the number of catastrophic events over time, That is actually good for insurers, because insurance contracts only last for 1 year, over time increasing annual damage/loss events causes increasing annual premiums, and the number off people seeking insurance and there for the amount of float insurers hold.

its counter intuitive, but anything that causes more losses increases the size of the insurance industry, while anything that causes losses to shrink will shrink the size of the industry.

for example there is a multi billion dollar car Insurance industry, but if some happened to cause the number of car crashes to drop to only 3 crashes per year, the amount insurance companies could charge would fall of a cliff, and that would be bad for the car insurance industry.

but if there is lots of crashes and storm damage to cars each year, the size of the industry would be large.
 
Up to a point where insurance becomes generally unaffordable and we are getting near to that imo.

Another market failure brought about by climate change like in the electricity industry.

Governments will have to step in again to avoid a consumer led political backlash.
 
Insurance pricing is based on the principle of taking money off the customers upfront, and then basically giving nearly 100% of it back over time, and the insurance company makes money just earning interest on the funds (float) while it holds it.

If people find the cost of insurance unaffordable, that’s generallly a sign that they can’t also afford the risk Either.

if the price of insurance ever gets so high that Insurance companies make large profits from the actual contracts, competition will flood in and wipe that profit away, and if insurance contracts ever get to cheap, claims will wipe the insurance company away, that basically means insurance will be pretty close to a 0% profit game, and the game is actually just holding float.
 
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