Risks related to strikes, riots and civil commotion (SRCC) have become elevated in advanced and emerging economies, with insured losses from these events in certain hot spots now comparable to major natural catastrophes, according to insurance and reinsurance broker Howden.
Growing discontent across the globe linked to inequality, the cost of living crisis and broader disenfranchisement, combined with the economic effects of the pandemic and Russia’s ongoing invasion of Ukraine, have, according to Howden, elevated SRCC risks globally and “caused a historic reset” in the standalone political violence (PV) market.
The broker’s new report notes that the PV loss profile has shifted in recent years, with insurers and reinsurers absorbing more than $10 billion of SRCC losses since 2015, compared with less than $1 billion for terrorism.
Howden highlights the recent unrest in South Africa and Latin America, as well as outbreaks of violence in Chile, the U.S., and Peru, all of which reflect a highly dynamic and interconnected risk landscape, which has seen the value of SRCC claims rival or even surpass major nat cats in certain instances.
Last year also saw incidents of unrest in Iran, Kazakhstan, Sri Lanka, and Argentina, and with protests in France and Israel hitting headlines in recent weeks, 2023 has offered little respite.
The structural change to the SRCC loss environment is clear to see in Howden’s report. It shows that major PV-related losses were previously confined mostly to large-scale terrorist bomb attacks, however, multi-billion dollar SRCC events in Chile in 2019, the U.S. in 2020 and South Africa in 2021, have led to considerable payouts for re/insurers.
The chart below shows how the increased frequency of severity has raised the quantum of SRCC claims in South Africa and Latin America to rival or even surpass nat cat losses.
Tom Bradbrook, Executive Director, Howden Specialty, commented: “Such devastating losses have precipitated a correction in the PV market that looks set to persist for some time to come. Clients can therefore expect to continue to encounter difficult market conditions in 2023. For the cover that is most sought after currently – namely SRCC and full PV – line sizes are being cut across the board and certain risks are difficult to place, especially in more volatile areas. Rates are up for all perils and territories, with our pricing index showing an average increase of 80% since 2018.
“Now more than ever, risk transfer advice can make a crucial difference to renewal outcomes. With little prospect of a let up in market conditions, sector expertise, market-leading thought leadership and unrivalled relationships with insurers have never been more important. Howden’s PV team provides all this and more and we look forward to supporting clients in managing change and securing the best coverage available in the marketplace.”
In response to all of the above, insurers’ view of the risk has shifted, with property insurers increasing pulling SRCC cover while risk appetite in the standalone market has fallen significantly.
“The fallout represents something akin to a perfect storm – demand up, supply down, triple-digit loss ratios and reinsurance retrenchment – resulting in a market-changing pricing correction,” notes Howden.
As a result, standalone PV pricing is undergoing a correction, rising by more than 80% since 2018. The broker describes it as the “most significant recalibration to the PV market since its inception,” and expects the correction in the market to persist for much of 2023, highlighting that pressures were compounded by the hardening reinsurance market conditions at the January 1st, 2023, renewals.
In fact, according to Howden, retentions and pricing doubled in the PV market in certain instances at 1/1, and overall, considerable reinsurance protection was lost.
Steve Bessant, Executive Director, Howden Tiger, added: “Treaty reinsurance appetite in this class declined at 1 January 2023, particularly for upfront carriers unwilling or unable to meet future treaty pricing expectations. The change was driven by the five key treaty reinsurers who, after recently sustaining disproportionately large losses from both standalone and all-risk policies, refused to continue on previous unprofitable conditions.
“The effect of this change varied by peril, with capacity commitments reducing for SRCC and full PV by as much as 30% and 60%, respectively, and pricing increasing significantly across the board. Event definitions and terms and conditions likewise tightened at 1 January 2023, as treaty reinsurers reduced exposures, particularly in the contingent business interruption space. These dramatic changes have cascaded down the value chain, forcing original insurers to pass on restricted wordings, higher costs and deductibles to buyers.”
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