2017 cat losses revealed stark differences between capacity

The 2017 natural catastrophes, which resulted in record insured losses globally, also served to test the quality of reinsurance providers—and some stark differences in quality were revealed, Stephan Ruoff, CEO of Tokio Millennium Re (TMR), told Baden-Baden Today.

The re/insurance industry shouldered record catastrophe losses estimated at around $135 billion in 2017 following hurricanes Harvey, Irma and Maria (HIM), as well as a severe earthquake in Mexico.

The losses revealed big differences in the quality of reinsurance balance sheets and the reinsurance capital provided, Ruoff said.

“Over the last nine months we have seen some competitors with ‘loss creep’, while others had none,” he explained.

“That highlights the importance of proper reserving and loss assessment. The degree of professionalism varies from player to player, with some ending up above or below market standards.

“The insurance-linked securities (ILS) markets have certainly proved their value proposition in 2017, in terms both of claims payment and of replenishing capital that has been affected by the losses.”

Another lesson from HIM is that third party capital has proved its value to the reinsurance sector and confirmed that it has become an intricate part of the reinsurance landscape, Ruoff said.

The alternative reinsurance sector, as thought by some, has passed its first major test with the 2017 cat events. While capital was lost, ILS players quickly reloaded after the events as investors made further funding available, proving the resilience of the segment, according to market observers.

TMR is heavily involved in the ILS world as a fronting company and a facilitator of ILS capacity. In addition, TMR has been sharing its own risk with third party and ILS partners in order to better manage its own exposures and balance sheet.