Small cats, big problems


Small cats, big problems

S. Bonaime /

It’s not just the rare large cat events that concern reinsurers: it would be a mistake to dismiss the impact of frequent smaller catastrophes on the global risk and capital supply chain, says Tom Johansmeyer, assistant vice president, reinsurance services, marketing at ISO/Verisk Insurance Solutions.

Was 2015 a small catastrophe year or a big one? According to conventional wisdom, last year was barely a blip on the radar. US and Canadian insured catastrophe losses combined approached only $15 billion. With the exception of the fourth-quarter tornadoes in Texas, natural catastrophe merited little more than a footnote in discussions around the January 1, 2016, reinsurance renewal.

Of course, there’s another way to look at the 2015 catastrophe year. Measured by frequency, it was the most significant since 1998, when Property Claim Services® (PCS®) lifted its catastrophe designation threshold to $25 million. PCS designated 40 catastrophe events in the US last year, with an average industrywide insured loss of $360 million. Last year was second only to 1996, which had 41 events but a catastrophe definition threshold of only $5 million.

Although the global reinsurance industry may generally view the activity as small, the events had a tangible impact on primary insurers and some collateralised reinsurance programmes. Smaller events may not grab headlines, but they can erode retentions and (at a minimum) lead to collateral events or even losses for some collateralised programmes.

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