According to analysists at Deutsche Bank, a 1 in 200-year storm event could cost the global insurance and reinsurance market losses of as much as USD$150bn (£114bn), wiping out up to 50% of the entire catastrophe bond, alternative capital and insurance-linked securities markets.
As reported by Artemis
, the new report by Deutsche Bank examined what effect a 1-in-200-year hurricane in the US could have on the global insurance and ILS markets. The report estimates between 55% and 60% of the overall loss would be taken by the insurance and ILS markets, representing a cost between USD$110bn and USD$150bn to the sector.
While the report stressed the unpredictability of storms and the multitude of factors that could vary where losses are had, the report does offer insight into how such a dramatic loss would affect the market. It suggests while usually after a massive loss reinsurance rates increase, the current economic climate means a loss of this size wouldn’t cause a significant rise.
“The low yield environment will likely remain as one driver for new money flowing into this segment,” said Deutsche Bank. “As long as rates stay low, we see no reason why investors should be scared away from this market segment, as it should offer new investment opportunities. We would simply expect a shift, with capital that just got hit from the hurricane loss staying away, while new money flows into the market.”
“We therefore expect that any price surge following a mega event would be smaller this time, and it remains to be seen whether this would be sufficient to re-coup the losses,” Deutsche Bank added.
RELATED STORIES LINKS: