Global insured losses stemming from major wildfires, tropical cyclones and severe thunderstorms reached $90 billion in 2018, close to 50 percent higher than the annual average between 2000 and 2017, Aon found in a new report.
Aon’s 2019 Insurance Market Report found that economic losses in those weather event categories were also substantial, reaching $225 billion globally in 2018.
Catastrophe weather events created another milestone for the property/casualty insurance industry. According to Aon, catastrophe losses made 2017 and 2018 the most expensive two-year period for insurers ever recorded. While the market remained resilient in the face of two record years in a row, Aon said that carriers and other industry players need to adjust to what has become a rapidly hardening market.
“It’s clear … we are in the midst of a transitioning market, and brokers, carriers and clients will need to think differently from the way they have in over a decade,” Russell Quilley, Chief Broking Officer, Aon in Canada, said in prepared remarks. “In a volatile business environment, it’s imperative for industry players to not only understand the impact of weather-related events and other changes, but also leverage the tools and expertise available to them. Putting innovation to work, and finding efficiencies in risk management and transfer solutions, will be more critical than ever.”
- At $225 billion, inflation-adjusted economic losses in 2018 were the second highest on record and followed losses of $358 billion in 2017. Cyclones and hurricanes were the most significant cause, leading to 20 percent of total economic losses. Wildfires in California, flooding in Japan and drought in the United States were also high on the list.
- Insured losses of $90 billion in 2018 are down from $134 billion in 2017.
- Even with those losses, global insurers had a larger capital base, which grew 3.3 percent, to $4.4 trillion, by the end of 2017.
- Canada continues to be an attractive location for capital deployment; the Canadian industry’s cumulative net combined ratio of 98.3 compares favorably with the U.S. (98.6 and UK (99.7) markets.
- The reinsurance market is well capitalized, despite a 3 percent decline in total reinsurance capital from 2017 to 2018. Global reinsurer capital stood at an estimated $585 billion in 2018, 30 percent higher than in 2011.
- The loss events of 2017/18 had the biggest impact on the alternative capital market, which includes catastrophe bonds and industry loss warranties. Growth has slowed as the entry of new funds is being offset by redemption and losses from catastrophic events.
- The top risks for insurers identified in the 2019 Aon Insurance Market Report include cyber attacks and data breaches, damage to reputation/brand, business interruption, regulatory changes, weather/natural disasters and an economic slowdown.