Reinsurers could be underestimating their exposure to natural catastrophes by as much as 50 per cent, according to a new report that lays bare the potential threat to these groups’ profits and capital from a worsening climate.

 "If its scenario played out, there would be “significant potential for volatility in earnings and capital”, S&P said, with the losses — and increased capital needing to be held against the risk — wiping out at least four-fifths of reinsurers’ excess capital above its required level for a double A rating. It added that the industry’s ability to raise prices to offset climate change risk “may not be sufficient or responsive enough”. But the agency said the experience was not its base case for calculating ratings. Instead, it hopes the findings will “provide us with a starting point for a dialogue . . . about [reinsurers’] modelling assumptions”, and would encourage “an even greater focus on the short-term impact of climate change”.

Ian Smith in Financial Times September 23rd 2021 

In parallel with S&P Nat Manning CEO of reinsurance startup KETTLE explained how the reinsurance industry is suffering because it outsourced its core underwriting capabilities during better, predictable times and is suffering in  these unpredictable times. Reinsurers are raising rates by circa 30% and insurers just have to pay up .

KETTLE claims to have created a better mousetrap. Its models run 696 billion risk assessments refreshed every fortnight to deliver a more accurate house-by-house risk assessment across the USA. "The cover might cost more than older models but is far better than the eye -watering fees charged by rival reinsurers" said Nat Manning.

In a report in February, Fitch Ratings said that the rising severity and frequency of natural catastrophe claims — driven by factors such as increasing wealth and climate change — would mean that insurers and reinsurers would need to have to provide “more and more capital” to cover the same amounts of risk exposure. Some clients may be unwilling or unable to pay the resultant higher prices, it said.  

In the US Kettle seems to offer a way out of Fitch's conclusion that: -

 “One answer could be the gradual withdrawal from insuring [natural catastrophe] risks, triggering the need for state intervention,” Fitch added. Kettle is focussed on wildfire risk though it implies it will add other CAT events to its assessment portfolio. 

The UK thankfully does not suffer the wildfire, hurricane or unexpected Texan extreme cold that the US experiences. Nevertheless, winter storms and extreme flooding challenge insurers and reinsurers as frequency increases and losses rise.

A major UK weather data intelligence provider, Weathernet, was acquired by digital claims insurtech Synergy from Sedgwick in May of this year. WeatherNet delivers a unique reservoir of urban-based weather data to supply historic, current and forecast services - and to deliver unique industry-tailored insights.   

Synergy delivers this weather intelligence not just for more accurate underwriting. It helps speed up and automate property insurance claims.

Kettle and Synergy are two major practitioners leveraging and combining data, AI and machine learning and delivering better decisioning for insurers, reinsurers and insureds.  And you must not ignore the property ecosystem data and analytics from CoreLogic which is sponsoring a timely LiveChat event with Intech London on September 30th 

There Must Be an Easier Way: Extracting the Property Data Underwriters Need. Follow the link to book a place and benefit from actionable insights. And if you are in London on October 11th book into another live event by Instech London at The Steel Yard - The Steel Yard Edition: Property Risk - What's New and What Works?