Climate model failure attains current cycle wildcard status: Conduit

The failure of climate models plus the advent of economic inflation as a claims cost driver have attained wildcard status, setting the current insurance pricing cycles apart from all others, officials at  Conduit Re have suggested.

“We are seeing increasing awareness in the market of the weakness of writing very large cat towers and cat exposures and overreliance on the models,” a company official told the Q2 earnings call.

A consensus “seems to be building out” on the matter, punctuated by the ever-increasing number of reinsurers “that have declined to continue in the cat space.”

The result is a catastrophe market “not being sufficiently supplied” with reinsurance.  Conduit considers that capacity pinch an opportunity “provided we can get the structures that we deem fair.”  The current market practice of bundling risks across types and geographies appears to be an industry last-ditch attempt to make very stretched ends meet.

The view at  Conduit, only on the market for some 18 months, has always been that the existing fixed models “are at best unreliable and not representative of emerging risks, including climate change.”

Economic inflation as a claims cost driver further sets the current hardening market apart from prior cycles.

“It’s in all the conversations,” the individual said.  “That awareness is here to stay; it gives a robustness to ratings levels.”

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