Cat losses to hit Q4 reinsurance earnings: Moody’s

Losses from hurricane Michael and the devastating Camp and Woolsey wildfires in California will feature prominently in the fourth quarter 2018 earnings, resulting in what is likely to be disappointing profitability for many reinsurers for the second consecutive year, according to Moody’s.

Insured losses from hurricane Michael and the California wildfires will send loss ratios higher and dampen the sector’s profitability for the year, the agency said in a December 18 report. At the same time, Moody’s noted that the second consecutive year of significant catastrophe losses will provide support for stable to higher pricing levels during the upcoming 2019 January, April and potentially June renewals.

In the third quarter of 2018 reinsurers' underwriting results improved year-over-year due to much lower catastrophe losses. However, several sizable catastrophe events during the quarter, including hurricane Florence, the Carr wildfire in California and a series of typhoons and flooding in Japan, resulted in underwriting losses for a number of firms.

For the third quarter of 2018, the reinsurance cohort covered by Moody’s reported net income available to common shareholders of approximately $6.2 billion, up from a loss of $3.2 billion in the prior year. Despite multiple global catastrophe events during the third quarter, total net income for the cohort through the first nine months of 2018 was approximately $18.4 billion, supported by better pricing, favourable loss reserve development and higher investment income, according to the agency.

Weighing on the fourth quarter results will be the Woolsey wildfire in southern California with an estimated insured loss of around $9.5 billion, the Camp wildfire in northern California with an average of $4.3 billion and hurricane Michael with an estimated average of $8 billion losses. In total, insured losses in the fourth quarter are estimated at between $14.5 billion and $29.0 billion, according to a compilation by Moody’s.

The agency believes that the significant insured catastrophe losses incurred during the past two years, which are now estimated to be in excess of $200 billion, with $50 billion to $70 billion occurring this year, provide support for stable to higher pricing levels during the upcoming January renewals and into next year. The catastrophe losses have also provided support for stable to rising rates in casualty reinsurance along with lower ceding commissions, it noted.