Reinsurers can help manage SCS risks: Lockton Re

Amid what remains a relatively balanced market, albeit with an obsession with the path of Hurricane Milton at present, reinsurers are remaining disciplined, while trying to help their clients with specific challenges, including the risks stemming from severe convective storms (SCS).

That is the view of Justin Lorence, co-leader property practice and senior broker at Lockton Re, based in Minneapolis, with a focus on property. Commenting on the dynamic in the property sense at the moment, in the context of an increasingly busy hurricane season, he maintains that, so far at least, there has been nothing to move the market.

“Hurricane Helene was almost all a retained loss by insurers,” Lorence said. “There was a lot to discuss around it—some losses were surprising, but they were not significant, not enough to change the market. It highlighted the extent to which retentions have increased. 

“Would cedants prefer that reinsurers take more volatility? Yes. But the reinsurers will say they are there for the very big events. That is their role.”

Lorence admits that Hurricane Milton could start to change the narrative in the market—but only to see reinsurance harden further. But this would happen only if the insured loss were “at least double digits and potentially a lot higher than that”, he said. “It could change the narrative. Everyone is watching its track very closely.”

“We need to reconsider what a secondary peril really is.”

Hurricane season aside, Lorence argues that reinsurers are becoming more open to helping their clients and offering more coverage where it is needed—in selective areas. One area where this is starting to occur is around SCS exposures, which cost the industry some $64 billion last year, comprising more than half the insured losses from all natural catastrophes, and have caused $42 billion of losses globally in the first half of 2024.

“When you look at those numbers, we need to reconsider what a secondary peril really is,” Lorence said. “SCS is now costing upwards of $50 billion every year—that is a primary peril to me. But reinsurers are responding. We are seeking aggregate and index-linked covers being looked at. They are trying to find solutions.”

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