$18 billion in insured losses from natural disasters for first half of 2014

Insured losses from natural disasters during the first six months of 2014 were below average at US$18 billion, while reinsurance capital grew to US$555 billion by the end of the first quarter, Aon Benfield said in a recent report.

“Despite a number of newsworthy events during the first six months of the year, overall first-half natural disaster losses in 2014 were below normal from the recent 10-year average (2004-2013),” stated Aon Benfield, the reinsurance reinsurance intermediary and capital advisor division of Aon plc, in its Reinsurance Market Outlook for June and July.

The $18 billion in insured losses for the first six months were 37% less than the “recent average” of $27 billion, Aon Benfield added. All figures are in United States dollars.

More than two-thirds (68%) of those insured losses were from convective thunderstorm and winter weather, Aon Benfield noted. Insured losses “attributed to ice, snow and sub-zero temperatures” were about $5.2 billion.

Meanwhile reinsurance capital grew to $555 billion by the end of the first quarter, up 2.7% from the end of 2013, according to the report.

“Terms and conditions for June and July renewals also improved, continuing a trend from the beginning of the year,” Aon Benfield added. “Property catastrophe renewals saw movement in traditional reinstatements, occurrence definitions, and terrorism language. While the movement was not uniform for all insurers, this further highlights traditional reinsurers’ desire to directly compete with the capacity provided by alternative markets.”

The use of alternative capital was “robust,” Aon Benfied noted, with 12 cat bond issuances completed in the second quarter.

“Investors were presented with a variety of risks in the second quarter with particular emphasis on Florida hurricane,” according to the report, which noted there were five transactions with a total of $2.1 billion issued, covering Florida only.

Aon Benfield included a chart listing cat bond issuances. The largest was $1.5 billion issued by Everglades Re Ltd. on behalf of Citizens Property Insurance Corp., with an interest spread of 7.5%, covering Florida hurricane.

“Also of note, meteorite impact and volcanic eruption are two new perils that have been included in United Services Automobile Association’s multi-peril catastrophe bond Residential Reinsurance 2014 Limited.”

Meanwhile, Kilimanjaro Re Ltd. made two issuances on behalf of Everest Re. One, for $250 million, covers southeast hurricane with an interest spread of 4.75%. The other, for $200 million, covers North American hurricane with an interest spread of 4.5%.

“Heading into the second half of 2014, the expectation of a developing phase of El Niño continues to become more prevalent,” Aon Benfield stated. “During an El Niño phase, suppressed tropical cyclone activity is typically expected in the Atlantic Basin; while enhanced tropical cyclone activity occurs in the Eastern Pacific Basin.”

According to the report, the U.S. National Oceanic and Atmospheric Administration (NOAA) “increased the likelihood of a developing El Niño phase” to 80% for summer and 80% for fall.

“The general consensus from the latest forecast computer model projections suggests that this will be a moderate El Niño event,” Aon Benfield stated. “While not expected to rival the intensity of the El Niño of 1997/98, this could be one of the strongest phases since that time.”