Record SCS losses the big nat cat story in 2023 for US insurers
Severe convective storms (SCS) have been the main driver of insured natural catastrophe losses this year, with the total hit from the peril setting a new record and suggesting the industry should be placing more weight on secondary events.
In its Q3 Global Catastrophe Recap report issued in October, Aon said that insured losses from SCS in the US surpassed $50bn – the first time this has happened.
SCS accounted for 60 percent of global insured losses, which Aon estimated at $88bn for the first nine months of the year, up 17 percent on the average since 2000.
This included SCS losses in Europe, with two individual billion-dollar events since 1.1, including the first billion-dollar SCS insurance loss in Italy.
The $88bn nat cat insured loss figure from Aon compares with Gallagher Re’s October estimate of private and public insured losses for the first nine months of the year of $93bn, with SCS accounting for two-thirds of all losses.
Gallagher Re said insured US SCS losses totaled $54bn over the nine-month period, while European SCS losses topped $4.5bn for the third consecutive year.
The reinsurance broker said that 2023 marks the fifth consecutive year with insured US SCS losses exceeding $20bn. Hail, which typically accounts for 50-80 percent of SCS claims, has again been the largest driver of loss from the peril.
Gallagher Re said that 2023 saw the second largest number of reports of large hail reaching two inches or more. Expanding urban footprints in hail-prone regions, in tandem with the increasing cost and size of homes, has further exacerbated the cost of hail-related claims.
The nine-month natural catastrophe loss tally puts 2023 on course to be another $100bn+ industry loss year, Gallagher Re said, with Q4 having typically accounted for 16 percent of annual insured losses over the past decade.
The broker said the decadal average (2013 to 2022) for insured nat cat losses is now $112bn, which signifies that $100bn+ loss years have now become a “new normal” for insurers.
Gallagher Re estimated economic losses for the nine-month period at $290bn, giving an overall protection gap of 68 percent with $197bn of uninsured losses. The US had the lowest regional protection gap at 31 percent.
The feedback from the two brokers backed up an analysis by this publication in early October, which showed that the industry loss bill for the year had passed $80bn at the end of the third quarter.
The past four years now represent four of the five costliest US SCS years on record. As this publication has previously analyzed, these losses are increasingly being retained by primary carriers as reinsurers retrench from more attritional covers.
SCS and Maui wildfire dominate Q3 losses
Aon said in its report that insured losses in Q3 were driven by US and Italian SCS, as well as the Maui wildfire, which was one of the deadliest and costliest wildfires in US history.
In Q3 alone, there were at least four individual billion-dollar insured loss events for SCS in the US. Aon said this will likely increase to seven events due to continued loss development.
The total number of billion-dollar insured loss events in the first nine months of 2023 is already expected to set a record.
Aon said that 32 individual billion-dollar disasters have likely occurred, already the highest annual total on record. “This was largely due to relentless severe convective storm activity in the United States, which contributed with 21 individual events,” the report said.
The top 10 insured losses of the first nine months include eight SCS events, with losses ranging from $2.3bn to $5.0bn.
The largest loss, however, was the Turkey and Syria earthquake sequence in February, with insured losses estimated at $5.7bn. The Hawaii wildfires, including the catastrophic event that destroyed the town of Lahaina, caused insured losses estimated by Aon at $3.0bn.
Commenting on the Aon report, Michal Lorinc, head of catastrophe insight at the broker, said: “Wildfire and severe convective storm were once again highly prominent, and Aon's research reveals that both are becoming increasingly costly to insurers, communities and governments.”
Aon said that in the US, around 80 percent of SCS loss growth can be explained by exposure change, which Lorinc said highlights “the need for insurers to understand underlying exposures in their portfolios”.
In a recent interview with this publication, Gallagher Re’s chief science officer Steve Bowen said that while SCS has dominated this year’s loss activity, it is important to also consider the impact of other so-called secondary perils.
“Hawaii, for example, is not an area where we would expect to see a multi-billion dollar fire loss event. Many of the areas that previously identified as being higher-risk based on changes to the hazard are now starting to translate into higher losses,” he said.
Quiet Atlantic season so far
In contrast to the heavy SCS losses, this year’s Atlantic hurricane season has delivered limited losses, with Hurricane Idalia the only notable event. Damage estimates for Idalia have fallen since early projections of a potential loss were issued in the $5bn range.
Gallagher Re’s latest estimate for the event indicates an insured loss of just $1.25bn.
“The good news has been from Hurricane Idalia – there was concern it had potential to become a much more expensive event,” Bowen said. “But if you were going to play a landfalling Category 3 storm in Florida, you couldn’t have found a better place from an industry perspective.
“While it will be another billion-dollar event – we have the loss estimated at $1.25bn – it impacted an area of very low population density. Around 200 miles to the south, and it would have been an entirely different type of loss.”
The lack of industry losses from US hurricanes belies a busy Atlantic season.
Bowen added: “The fact that right now we are facing another $100bn loss year for the industry, but we haven’t seen a significant landfalling Atlantic hurricane, once again reinforces the primary versus secondary debate, and whether we should be placing more weight on secondary events. 2023 is set to be the year where we have those conversations about whether we need to do away with framing of primary/secondary perils.”