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Natural disasters weigh heavily on the financial prospects of insurers, says Moody’s

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Writing

20 March 2018 13:30

The natural disasters are in the process of curbing the insurers in their business, according to a report from the firm’s rating Moody’s. The significant exposure of insurers and reinsurers of damage to the economic consequences of natural disasters poses several risks, according to the study.

Moody’s mentions that these events can have negative impacts on the development prospects of the enterprises, considering that it is difficult to predict the frequency and severity of disasters. The report explains that several factors will increase the volatility for insurers and will pose challenges to the evaluation, measurement, and mitigation of catastrophic risks.

“The correlation of the exposure to climate risks, through the financial balance sheets of insurers and reinsurers increases the size of potential losses,” stressed the agency.

An increase in the frequency

If in the 70’s, there were only 60 events annually, there are now, on average, 310 per year for the last ten years. Similarly, the total insured losses related to natural catastrophes has climbed in spite of the adjustment for inflation.

 

 

 

The uncertainty surrounding the pricing

Although insurers and reinsurers have the skill to price the exposure to these risks, the report says that, historically, it has been shown that the actual losses may differ from expected losses or models due to a limitation of the models of disasters and of the parameters used for these. This can lead to loss of subscription unexpected in relation to extreme events.

“The ability of insurers and reinsurers to underwrite these risks on an annual basis mitige somewhat the risk of loss, grade Moody s. However, while the trends of climate change create an environment that is unpredictable, which makes the assessment and pricing of risk more difficult, it becomes more likely that the trends in pricing will be constantly lagging behind compared to the actual loss, which means that the industry finds itself in a situation of catch-up when it increase rates to absorb the losses. “

Business opportunities with entities affected

In addition, Moody’s says that insurers and reinsurers may see a growth opportunity with entities affected by the natural disasters by providing products, whether they are existing or new.

In addition, a better use of the transfer of risk in order to tighten a gap of protection represents a good opportunity for growth in the coming years, the report says. The study cites a report by Swiss Re, which reported a gap of approximately $ 160 billion, the highest level ever recorded.

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