December 5, 2023

One of the trends emerging in the second quarter was an increase in losses from convective storms and severe weather, affecting insurers across the U.S., but at new and higher add-on levels, little reinsurance support has been seen so far.

optional insuranceThe higher attach points set during the current difficult market negotiations make it less likely that accident reinsurance will attach to severe convective storms and similar losses.

At the same time, reinsurance totals are now much smaller and, where reinsurance is available, there are often stricter rules on eligibility for catastrophe losses.

All of this means that while US insurers face a significant catastrophe loss burden in 2Q23 (mainly from convective storms), the bulk of losses will remain in the primary market, with reinsurers and ILS funds largely avoiding any significant impact.

We have seen re/insurer QBE disclose relatively large catastrophe losses and increase catastrophe budget; insurer Travelers catastrophe losses in the second quarter weighed on its performance; insurer Allstate also disclosed its catastrophe loss burden in the second quarter;

Selective Insurance Group has pre-announced catastrophe losses from the second quarter of 2023, saying its combined ratio will increase by 10.6 percentage points and expects the combined ratio to be above 100%.

Selective said it expects catastrophe net losses before taxes to total approximately $100 million in the second quarter.

These will be assigned to their underwriting units, where $63 million Standard Commercial Line’s pre-tax net catastrophe loss, $21 million standard personal line, and $16 million in the excess and remaining lines.

A total of 19 named catastrophic loss events were cited, a similar number to some of the other events that have been disclosed.

Selective said most of the storms affected the Midwest and East Coast footprint states.

But despite this reasonable burden, Selective explained, “none are large enough to attach to our catastrophe reinsurance treaties.”

Now, reinsurance coverage has shifted to protect insurers against larger, more impactful storm events, while frequency coverage in its overall form is less, more expensive, and often higher up in its reinsurance tower.

Selective said the insurer raised its forecast for net catastrophe losses in 2023 from 4.5 percentage points to a current contribution of 6 percentage points to the full-year combined ratio due to the higher catastrophe loss burden in the second quarter.

“In a challenging operating environment with increasing catastrophe losses across the insurance industry, our teams worked hard to serve our customers and distribution partners. For the first half of the year, we expected operating ROE of 12.2%, in line with our 12% target, and we are on track to achieve our full-year combined ratio guidance of 96.5%, $300 million Net investment income after tax. In addition, we delivered excellent net premium growth. ” commented Chairman, President and Chief Executive Officer John J Marchionne.

As we reported earlier this year, Selective Insurance Group, which renewed its catastrophe reinsurance tower on January 1, 2023, received a $216 million fully collateralized limit this year, most of it at the top of the program.

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