USA - Reinsurers waiting to see RMS 23 impact on already elevated US cat demand
The property cat market is still waiting to see how US insurers implement the new North Atlantic hurricane model from RMS into their underwriting, with the update pointing to increases of up to 30 percent in expected losses in Texas, the Gulf, Florida and Southeast states, which could drive incremental demand for limit.
As previously reported, RMS Version 23 – officially released in June – did not impact mid-year renewals, but is expected to factor into modelled output to drive probable maximum losses and deployment of aggregate in 2024.
In the US property cat insurance market, broker sources have said they are still waiting for primary insurers to enact the updated version into their underwriting and pricing, in a business line which is already rock hard after an acceleration in the past year.
That rehardening was partly in response to soaring reinsurance costs and structural changes to excess-of-loss cat programs that have left primary carriers retaining more risk in a year that has already seen record severe convective storm losses.
At Monte Carlo last year demand for additional cat reinsurance limit from US cedants was estimated at $20bn or more, but not much of that translated to actual buying at 1 January 2023.
Through the year there have been some moves by carriers such as Chubb and Travelers to place additional cat layers or covers. The expectation is that inflation-driven demand for additional limit will again feature in renewal discussions in the coming weeks and months.
What is not yet clear is the extent to which insurers will adjust their view of hurricane risk based on the new RMS release.
Senior reinsurance market sources have given conflicting views of the impact on supply and demand dynamics.
On the demand side, there is an expectation from reinsurers that there will be incremental demand from some buyers, depending on their approach to modelling and their existing view of risk.
However, one reinsurance broking executive downplayed the potential impact on demand, as well as supply, saying: “Of course it has an impact, but perhaps not as much as it had historically. Most reinsurers, most buyers and all brokers take a blended view of risk.”
They added that the headline numbers for expected losses provided by RMS are a generic overview.
“When you get down to somebody’s individual portfolio it may not look like that at all. In the old days it was RMS or nothing, and it isn’t anymore. But it would be wrong to say there won’t be some impact,” they continued.
The modelling firm – now part of Moody’s – told clients in pre-release communications that Version 23 reflects “significant changes” in the built environment in coastal regions to feed into how the hazard is represented today compared to five or 10 years ago.
It also incorporates the current understanding of factors impacting claims from recent loss events, such as water intrusion, which has led to increased vulnerabilities in particular in relation to homeowners associations.
And the new version factors in the changed view of risk around current understanding of climate change conditions, creating an additional uplift when looking at the medium term.