Milton uncertainty hangs over renewal talks as reinsurers step up focus on European loss creep

European reinsurance buyers will enter this week’s Baden-Baden talks with a cloud of uncertainty over their upcoming 1.1 renewals as the market continues to digest the impact of Hurricane Milton.

With a $30bn gap between the top and bottom end of modelled estimates of insured losses from the storm, the ultimate quantum of Milton will have a significant bearing on the extent to which pricing revisions are contained within the Florida market or more widespread at 1.1.

Reinsurers were tight-lipped as to whether any pricing impacts could spread to Europe ahead of this week’s talks, with Swiss Re’s Leopoldo Camara telling a pre-Baden-Baden briefing it remains too early to say what pricing will do this year given recent loss events are still developing.

But there were already signs pre-Milton that reinsurers were targeting increases in certain European countries regardless of the outcome of the hurricane season in the US.

Following Monte Carlo discussions, KBW analyst Meyer Shields said it was likely some European countries would see upward pressure in property cat pricing at 1.1, albeit tempered to some degree by the extent to which Europe serves as a diversifier for the southeastern US.

Any upward pressure will be compounded by recent loss experience in the region, even if Europe represents a relatively modest component of the industry catastrophe bill so far in 2024.

Gallagher Re’s nine-month 2024 catastrophe review shows Europe accounted for just 4 percent of industry cat losses in Q1-Q3, with the most significant event being September flooding triggered by Storm Boris, estimated by the broker to be a $3.1bn insured loss event.

But reinsurers will point to the escalation of losses in the region in recent years from what have traditionally been considered secondary perils, most notably flood and hail events.

Each of those events have seen significant loss creep, with initial estimates growing substantially in quantum as claims develop.

An analysis by The Insurer in July showed that industry loss estimates in the region are rising by around 28 percent on average from initial projections.

Concerns around the issue were flagged by Chris Killourhy, managing director of QBE Re, in a Viewpoint in The Insurer’s Monte Carlo daily editions, where he highlighted the July 2023 Italian hailstorms as an example of an event that experienced significant creep.

An initial estimate by Aon and industry loss index provider Cresta in October last year pegged losses at around $2.2bn. Estimates rose to $2.7bn in January, $3bn in February and $4.8bn in April. By June 2024, Swiss Re said losses were expected to end up around $6bn, nearly triple the initial estimate.

Ahead of this week’s renewal talks, Swiss Re issued a rallying call for insurers to act on the issue, as we highlight inside today’s edition.

Nikhil da Victoria Lobo, head of P&C reinsurance for Western and Southern Europe and Middle East and Africa, told the group’s pre-Baden-Baden media briefing that underestimation of losses was bringing uncertainty into the reinsurance sector, which potentially then increases the cost of capital for reinsurers.

Those jurisdictions that have taken the brunt of losses in the region over recent years – notably Italy and Germany – will likely face upward pressure at 1.1 regardless of Milton outcomes.

Terms and conditions could also tighten. As QBE Re’s Killourhy flagged last month, attachment points have not yet fully corrected in Europe with rate increases lagging the US and broader international markets.

German renewals typically take place early, with many programs concluding in late November/early December.

At last year’s 1.1 renewals, loss-hit property catastrophe accounts typically rose between 10 and 30 percent in Germany, with loss-free accounts up between 5 and 12 percent, according to Gallagher Re.

Germany has since seen a €2bn flood event in June, before being impacted again by the recent flooding caused by Storm Boris.

Broker commentary in recent days has pointed towards a flattening of pricing at 1.1 in the aftermath of Milton.

Guy Carpenter CEO Dean Klisura said he anticipated a “very competitive” market environment at January cat renewals, with potential for some softening higher up property cat towers.

Aon earlier issued a $25bn-$40bn post-landfall estimate for the storm, which it said would be expected to flatten renewals at 1.1 but not drive hardening.