Tuesday, June 30, 2015

"Stronger El Niño Could Both Help and Hinder Re/Insurance: KBW"

The property/casualty and reinsurance industries have so much over-capacity they are desperate for new markets/business or risk reduction in existing policies. The next step will probably be lobbying for some sort of mandated coverage.

From Artemis, June 15:
Recent reports that the impending El Niño event in the Pacific Ocean may onset more quickly and be stronger than forecast could be both a help and hindrance to the insurance and reinsurance market, according to analysts at Keefe, Bruyette & Woods (KBW).

Predictions from the NOAA that there’s a greater than 90% chance of El Niño conditions remaining throughout the summer and fall provides a signal to global re/insurers of fewer Atlantic hurricanes. The latest forecasts also show an 85% chance that El Niño conditions will last through winter 2015-16, which could prolong the impacts to weather and climatic conditions from this ENSO cycle.
Latest SST's El Nino
Although seen as a positive for most in the reinsurance industry, the downside says KBW “is that if 2015 proves to be another quiet hurricane year, it’s more likely that double-digit rate decreases will continue for 2016 renewals.”

Contrasting to KBW’s final point, RBC Capital Markets recently said that for European reinsurers, the best-case scenario in current market conditions would be for a continuation of benign catastrophe losses, as a ‘normal’ loss year “would not lead to any uptick or stabilisation of pricing and would only serve to dampen capital returns.”

It’s also possible that a stronger and earlier El Niño event could lead to a hike in the number of Southeastern tornadoes, explains KBW, including a rise in the volume of low-to-moderate severity catastrophe losses. Note: a recent study suggests that U.S. severe thunderstorm and tornado incidence can decline during an El Niño year.

The problem here explains KBW, is that historically “these events can often fall below reinsurance retention thresholds, pressuring primary insurers without much impact to reinsurers.”

Offsetting the negative impact of a rise in tornado activity is the potential for El Niño conditions to increase U.S. rainfall, says KBW. Highlighting that so as long as rainfall isn’t excessive, it can boost U.S. crop yields and help to mitigate drought conditions....MORE