Hagibis to cost industry circa $15bn: RenRe's O'Donnell

Renaissance Re CEO Kevin O'Donnell said Typhoon Hagibis this month will cost carriers around $15bn, during an earnings call highlighting the possible impact of a changing climate on the insurance industry.  

Speaking to analysts on Tuesday following the release of third-quarter results, O’Donnell also put the value of insured losses from Typhoon Faxai in September at nearly $10bn.  

Along with the cost of previous events in Japan last year, including Jebi and Trami in 2018, Japanese typhoons had cost around $50bn over two years in insured losses, the RenRe CEO said. 

He said the Japanese storms “highlight several issues our industry continues to struggle with: climate change, deficient modeling, poor underwriting, lost, freed and trapped capital.” 

O’Donnell noted that 2017 and 2018 were the worst loss years in history for cat events.  

“An ever-expanding body of scientific research suggests that these trends are, in fact, man-made.” 

He said the company believes that the frequency and severity of natural cats has increased as a result of climate change.  

“The market is missing the point” when it comes to the “mounting influence of climate change on catastrophe risk”, he said. 

He said that current events in California starkly illustrate the potential for climate change risks to cause more severe industry losses. Those events are also not well-modeled, he said, adding that the company’s own internal models show storm surge and wildfire at higher levels of severity than current vendor models. 

“If you look at the wildfires at the wildfires, then you look at what is forecast with climate change and what is occurring in California, particularly the 2017 wildfires are kind of a textbook example of future expectations,” he said.  

“I think there's just a general migration of opinion from it being normal climate variability to just being something more substantial and man-made climate change.” 

Another area of increasing claim severity is casualty, he noted. Ren Re has expanded its casualty and specialty gross written premium by 68.6 percent year-on-year to $546.7mn in Q3 2019, driven by the acquisition of Tokio Millennium Re (TMR) last year.  

O’Donnell described commercial auto and excess casualty as the “ground zero” for social inflation. He said the company had limited exposure to commercial auto, except through the TMR book, with excess casualty representing around 5 percent of its casualty premium.  

He said that since 2015, the company had shifted its professional lines book away from public directors and officers (D&O) cover towards M&A insurance, helping to insulate the reinsurance from loss trends in D&O.  

Ren Re reported operating earnings per share of $0.29 in Q3, down from $0.45, and short of the analyst consensus of $0.88.   

The reinsurer reported a combined ratio of 100.4 percent, down 5.1 points year on year, despite an 8.1-point deterioration in the accident-year, ex-cat loss ratio to 52.7 percent. Reserve releases pared 1.1 points from the combined ratio, down from 1.8 points in the prior-year period. 

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