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JP Morgan criticizes industry’s approach to natural cat losses


JP Morgan speculated that the reinsurance and insurance industry should review the way it categorizes catastrophe losses.

As losses have increased in recent years, JP Morgan said it was proportionate not to look at the volume of losses but to compare losses with premiums.

He wrote: “Nominal insured losses are expected to rise naturally due to rising insured values ​​and rising global GDP. Comparing insured catastrophe losses to global insurance premiums, the trend shows that losses have increased in recent years. However, the 10-year average trend of insured natural catastrophe losses relative to premiums does not show a particularly concerning conclusion, in our view, at this nearly 3% of industry premiums.

Although JP Morgan said there were no industry-wide concerns regarding losses from natural disasters, it raised some concerns about the sector at the company level.

He said: “Over the past five years, global reinsurers have recorded natural catastrophe losses 3.5 points above their budgets on average, compared to 0.4 points above budgets on average over a period. 10 years.”

He added: “We believe that estimating a conservative nat cat budget is a key driver for the industry, especially for reinsurers. Reinsurance margins on a normalized basis are relatively slim (average margin of 5% based on a normalized combined ratio of 22nd). Therefore, if a catastrophe budget is even 1 ppt higher than forecast, it could potentially mean that assumed underwriting profits are overstated by 20%. »

However, the firm said there was no real upturn in claims from natural disasters relative to insurers’ expectations, saying reinsurers had increased their budgets in this area. Mitigating factors including pricing, which it says has been on a positive trend since 2017; adjusting terms and conditions to manage risk; and the opportunity for growth from a higher potential frequency of events.

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