Insurers’ disaster capacity expands, even as cat losses soar

Although 2017 – fraught with catastrophic incidents – was one of the costliest years on record for the global insurance industry, Aon’s new report has found that insurers’ capacity to meet their losses continues to grow.

According to the brokerage giant, global insurer capital grew to US$4.5 trillion in the first half of 2017. This increase in capacity comes as 2017 posted its second highest record for economic losses, at US$353 billion (adjusted for inflation).

“The bad news for insurers is clear: 2017 was one of the worst years for insured losses on record,” commented Aon Canada executive vice-president and chief broking officer Rohan Dixon. “The good news, though, is that insurers’ capital positions remain strong, meaning that the industry’s capacity to meet insured losses and operate profitably is not only stable, but growing.”

2011 remains the record holder for economic losses, at US$486 billion.

Other key findings of Aon’s 2018 Insurance Market Report include:

• Of the various catastrophes that contributed to 2017’s economic losses, Atlantic hurricanes were the most significant cause (US$220 billion), followed by flooding in China, wildfires in California, and the Southern European drought.
• Insured losses reached US$134 billion in 2017, second only to 2011.
• Canada remains the best location for capital deployment, due to industry profitability (higher than the US or the UK) and economic and political stability.
• The reinsurance market is well-capitalized; global reinsurer capital grew by 2% in 2017 and reaching a record US$605 billion.
• The alternative capital market (catastrophe bonds, industry loss warranties) has replaced all the capital lost due to 2017 catastrophes.
• “Abundant capital is fuelling both innovation and competition within the industry, forcing insurers to better understand and evaluate underwriting risks.”
• Based on the report’s findings, Aon identified several top risks for insurers:
  • Damage to reputation/brand
  • Regulatory changes
  • Increasing competition
  • Failure to innovate
  • Political uncertainty
  • Cybercrime
  • Third-party liability

“The Canadian commercial marketplace continues to be competitive, as insurers and brokers are creating innovative solutions for clients and deploying advanced data analytics to develop strategies for better bridging capital with emerging risks,” Dixon added.

Dixon also briefly touched on the subject of emerging industries, particularly drones and cannabis, which are creating challenges for some insurers. But for other insurers, he pointed out, they are taking advantage of the pace and securing a foothold on the up-and-coming industries before the rest of the competition can catch up.

“This [push into new industries] is creating new premium and risk control opportunities for insurers,” he remarked.