Insurers exiting high-risk areas as climate losses rise 360%: Bloomberg

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Bloomberg Intelligence (BI) has said that a 360% rise in insured losses in the past three decades from the increased frequency and intensity of natural disasters is causing insurers to “hike premiums and exit high-risk areas,”.

technologyAt the same time, transition risk associated with the assets backing these liabilities is said to be “pressuring insurers” to cut coverage of polluting sectors in their investment portfolios.

According to BI, global insured losses from natural disasters in 2023 are estimated at $118 billion, which is well above the 2017-21 average of $97 billion.

The BI team also explained that more than 50% of the top 20 global reinsurers held or cut their natural-catastrophe exposure in the January 2023 renewals.

This includes: Allstate, who are set to stop writing new policies in wildfire-prone California, and AIG, who has also retreated from new business in the state and is set to curb home-insurance for wealthy customers in certain ZIP codes across the United States.

However, BI noted that in the short term, reducing natural-catastrophe exposure may cost insurers.

A key example is AXA XL Reinsurance, who raised prices 10% in 2023 but ended up taking in 5% less as a result of cutting exposure.

Grace Osborne, BI ESG Analyst, commented: “A repricing of climate risks has seen global property catastrophe-reinsurance rates rise by as much as 30% at the start of 2024. Rising premiums have served to improve loss ratios (total losses paid by insurers plus adjusted expenses over total earned premiums), despite increased insured losses, only Allstate and RenaissanceRe seeing a rise in loss ratios in 2000-22. However, if the rate of increases continues consumer appetite to shift climate risk to insurers could decline.”

Adding: “Increased frequency of climatic events has exposed insurers to more risk as reinsurers are reducing their exposure to secondary peril events by raising the loss threshold for reinsurance to kick-in. Smaller, more frequent events, such as the 25 Severe Convective Storms last year, are therefore creating balance sheet attrition volatility for insurers.”

The post Insurers exiting high-risk areas as climate losses rise 360%: Bloomberg appeared first on ReinsuranceNe.ws.

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