Soaring climate losses see insurers exit ‘uninsurable’ areas
Insurers are hiking premiums and exiting high-risk areas as a result of a 360% rise in insured losses in the past 30 years due to the increased frequency and intensity of natural disasters, according to Bloomberg Intelligence.
It said that transition risk associated with the assets backing these liabilities is pressuring insurers to cut coverage of polluting sectors in their investment portfolios.
Global insured losses from natural disasters in 2023 are estimated at $118bn, well above the 2017-21 average of $97bn, according to Bloomberg. It noted that more than half of the top 20 global reinsurers held or cut their natural-catastrophe exposure in the January 2023 renewals.
Bloomberg pointed out that Allstate is set to stop writing new policies in wildfire-prone California, while AIG has also retreated from new business in the state and is set to curb home insurance for wealthy customers in certain zip codes across the US.
“In the short term, reducing natural catastrophe exposure may cost insurers,” said Bloomberg, adding that AXA XL Reinsurance raised prices 10% in 2023 but took in 5% less as a result of cutting exposure.
Grace Osborne, Bloomberg Intelligence ESG analyst, said: “A repricing of climate risks has seen global property catastrophe reinsurance rates rise by as much as 30% at the start of 2024. Rising premiums have served to improve loss ratios (total losses paid by insurers plus adjusted expenses over total earned premiums), despite increased insured losses, with only Allstate and RenaissanceRe seeing a rise in loss ratios in 2000-22. However, if the rate of increases continues, consumer appetite to shift climate risk to insurers could decline.”
She added: “Increased frequency of climatic events has exposed insurers to more risk as reinsurers are reducing their exposure to secondary peril events by raising the loss threshold for reinsurance to kick in. Smaller, more frequent events, such as the 25 severe convective storms last year, are therefore creating balance sheet attrition volatility for insurers.”
