Severe Weather Conditions Don’t Batter Reinsurers as 2014 Q1 Trends Emerge

Reinsurers must be smiling a lot as Q1 reports for this year show up. Most insurers seem set to gain from uncompromised capital and manageable claim volumes. Underwriting teams have performed rather well with 2014 being a remarkably silent year in terms of catastrophes. With no major natural disasters so far and no discouraging weather forecasts, the immediate future looks secure for carriers.

Staying Positive with a Guarded Approach

After 2012, ever since the likes of Sandy battered the coastal regions, river/ocean dwellings and businesses have been spared from permanent damage. However, it would be wrong to state that the entire industry hasn’t seen any challenges in the first quarter of 2014.

As market optimism gained momentum after the Holidays, winter storms started rolling in. With the onset of 2014, a polar vortex gripped the nation, bringing freezing temperatures to most states. This was interpreted as a part of a global weather pattern since European nations too suffered from winter storms and flooding (very severe in the UK). However, the reinsurance industry isn't complaining much about these events.

Most businesses that seek comprehensive coverage against various types of natural disasters usually pay more-than-average premiums. Further, the smaller insurers have typically stayed away from taking upon too much of reinsurance risks. The bigger, more established insurers exposed to claims surfacing due to snowstorms have been able to absorb the shock.

Yes, insurers have received storm related claims but the overall situations remains manageable for most insurers. Most claims haven’t sought compensation for total overhauls or large scale construction. Most properties suffered partial damages. Common damages include collapsed roofs, burst sewage lines, power failures, and auto accidents but with little loss of life or excessive damage to property. Many needed exhaustive repairs but little rebuilding. This ensured that carriers’ bottom line wasn’t dented. Further, reinsurers are exposed for a part of the total compensation only.

Making Sense of All This

The significance of this upbeat trend assumes greater importance if the severity of cold and snowfall-caused losses are taken into consideration. The losses are at their highest since 1980. The entire nation has been suffering an unexpectedly long and brutal winter. This has given rise to more commercial and personal claims. Still, the industry at large remains positive, finding security in its capital reserves. The insurers’ buffer has been further boosted by better consumer activity in the first quarter.

Agents are being increasingly questioned by consumers who have had a recent, good run on their credit histories. Reinsured mortgages are being sanctioned with lesser apprehensions. This is creating a cycle of positivity—a better capital position is allowing insurers to take upon more risk which is further influencing better consumer interest. Even the catastrophe bonds that provide some level of reinsurance protection against losses caused by winter storms are expected to deliver, not causing any principal loss.

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