Jean-Paul Conoscente, CEO of P&C at SCOR, one of Europe’s big four reinsurers, said today that the impact of the Los Angeles wildfires should be around a quarterly natural catastrophe budget for Q1 for the firm, emphasising that the event will act as a floor to the drop of cat prices seen at the January 1st renewals.
Early this morning, the French reinsurance company updated the market on the outcome of its 1.1 2025 reinsurance renewals, during which the firm grew estimated gross premium income (EGPI) 9.6% on the back of robust growth in specialty lines (14.3%) and alternative solutions (29.6%), and growth of 2.9% in P&C reinsurance.
After the release, CEO of P&C, Conoscente, provided more details on the January renewals and an outlook for upcoming renewals, which included an update on the Southern California wildfires, poised to become the costliest wildfires in U.S. history for insurers and reinsurers.
“With market losses varying from $30 billion to $45 billion, we believe this will be a large but manageable loss for SCOR,” said Conoscente. “Based on the information currently available, we believe the impact should be around a quarterly cat budget for Q1.”
For Q1 2024, SCOR’s natural catastrophe ratio (net claims related to nat cats divided by net P&C insurance revenue) budget was 10%.
During the call, Conoscente explained that SCOR attempts to position its capacity above roughly a 1-in-10 return period, highlighting the fact insurers and reinsurers have taken action to significantly cut their wildfire exposure since the events in 2017 and 2018, with sellers being more selective by lifting retentions and trying to position capacity above the normal activity.
“And so, for the wildfires, we take that into account and we try to position our capacity above what we consider a normal wildfire activity. Here, this event is really unusual in the fact that the area that was affected has a lot of high-net-worth individuals, very expensive real estate, and the fires were aggravated by the Santa Ana winds, which spread the losses and kept them going for a long period of time.
“So, I’m not sure exactly what the return period of this event is, but it will be higher than the 1-in-10,” said Conoscente.
Ultimately, the recent LA wildfires do not change SCOR’s view of the peril, the company remains risk averse to it.
“But here, what we anticipate will be driving our losses will be, cat XoL of insurance companies that position their program above the normal frequency, but this is kind of a very unusual and severe loss. So, this is a type of loss that reinsurance is here for,” he said.
As the wildfires continued to spread and insured loss estimates continued to rise, with some now as high as $50 billion, there’s been a lot of discussion about the impact on property cat pricing at the future renewals after rates softened at 1.1 2025.
Commenting on this, SCOR’s Conoscente said that a $35 billion or more industry loss from the LA wildfires will have an effect on cat prices, which he expects to be more stable than observed at January 1st.
“For the rest of the renewals, we don’t have many renewals in countries where there has been cat losses this year, but we think the wildfires will act as a floor to the drop of cat prices. So, I would expect the cat price to be more flat on the US renewals for the rest of the year, and probably between zero and 5% in other territories,” he said.
At the same time, the CEO expects the wildfires to help maintain underwriting discipline among reinsurers for the remainder of the renewals in 2025.
Conoscente explained: “So, with cat, we saw an initial push from cedents and brokers to buy lower down and float aggregate covers, or second event covers to reinsurers. I think, overall, the market was quite disciplined, and there was resistance to go lower down or to offer aggregate covers. In our case, we were able to more or less keep attachment points stable and write very little aggregate covers, or second event covers.
“So, I think that will continue throughout the year. There still is a very high risk aversion, both on the insurance side and the reinsurance side, to those type of covers. So, I think for the rest of the year, especially in view of the Los Angeles wildfires, I think there’s going to be continued discipline from the reinsurers on the remaining renewals.”
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