French insurers rethink appetite and pricing for nat cats

French insurers and reinsurers are rethinking their appetite and pricing for natural catastrophe risks as a result of the growing frequency and severity of weather-related events such as drought, storms and wildfires, according to AM Best.

Best noted that record-breaking temperatures and severe droughts led to significant property damage losses in 2022. The latest estimate from France Assureurs puts insurers’ weather-related natural catastrophe losses for 2022 at around €10bn, prompting reinsurers to push up prices and tighten conditions in the 1 January renewals. Best said insurers and reinsurers are expected to increase premium levels and reduce their risk appetite for natural catastrophe events.

France experienced another year of extreme weather in 2022, including record-breaking temperatures and lower than usual precipitation, resulting in heavy weather-related natural catastrophe losses for insurers and reinsurers.

“There is a growing consensus within the insurance industry that hotter, drier weather in France contributes to the increase in the frequency and severity of weather-related events such as drought, storms and wildfires. As a result, French insurers and reinsurers are reconsidering their assumptions, pricing and risk appetites for weather-related natural catastrophe events,” said Best.

The ratings agency said that the 2022 thunderstorms in France are an example of emerging experience deviating from historical data. It said that while a final insured loss figure is still to be fully determined, estimates indicate that they will set new records. The most current insured loss estimate from France Assureurs is €6.4bn.

There has also been a steady increase in soil subsidence-driven property damage losses, noted Best. Loss estimates for 2022 range from €1.9 to €2.8bn, according to France Assureurs, compared to losses of €2.1bn for 2003, the previous record-breaking year. France Assureurs believes that soil subsidence claims are likely to continue their upward trend, with the association expecting around €43bn of claims for the period 2020-2050, compared to an annual average of €13.8bn for the prior 30 years, Best explained.

In addition to the effects of increasing loss frequency and severity, the inflationary environment is likely to further exacerbate market conditions, and Best said it expects that pricing, in both the French insurance and reinsurance segments, will continue to be affected by the increasing costs of natural catastrophes through the medium term.

However, Best pointed out that the French state has a track record of supporting individuals and companies impacted by natural catastrophe events, including the insurance industry. Most notably, the state has assumed the most extreme risks associated with large events or natural catastrophes, decreasing the insurance industry’s exposure and volatility of earnings.

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