As severe weather-related events increase, primary insurers might look to aggregate reinsurance cover

The cumulative effect of damage caused by natural catastrophes such as wildfires, tornadoes, hail storms and ice storms – events that, individually, are not big enough to trigger reinsurance coverage – may cause primary insurers to reconsider how they purchase reinsurance.
Speaker Glenn McGillivray made the observation while giving a speech at a Sept. 23 Insurance Institute of Canada seminar in Toronto on the topic of severe weather events.
Increasingly, the damage claims caused by large storms are hitting primary insurers square on their balance sheets, McGillivray noted. Primary insurers have gone on the record with Canadian Underwriter as saying the cumulative effect of these individual weather events represents “death by a thousand cuts.”
Reinsurers are now offering aggregate coverage, although sources see the take-up of this coverage in Canada as slow.
Under aggregate reinsurance arrangements, primary insurers can accumulate damages caused by several unrelated weather events; once they accumulate to a certain aggregate level, reinsurance coverage would be triggered.
This is different than having reinsurance ‘attachments points,’ in which reinsurance coverage is triggered only if an individual event reaches a certain magnitude of damage.
A basic example of the difference is as follows:
An insurer has an attachment point of $50 million for a single event to trigger reinsurance coverage. The same insurer purchases aggregate reinsurance cover available at a $100-million loss.
The insurer suffers losses in three separate storms of $27 million, $49 million and $34 million.
Individually, none of the storms are damaging enough to reach the attachment point of $50 million required for reinsurance cover. But collectively, they cost $110 million, thus triggering aggregate reinsurance cover.