Marsh Re finds reinsurance still built for the extreme event

US insured losses from severe convective storms have topped $30 billion every year since 2020 and passed $40 billion in four of them, yet insurers buy reinsurance for the rare, extreme event, Marsh Re said. The report was covered by Insurance Business America on Nov. 3.

A season of 15 midsize hail events can do more damage to an insurer's results than the one-in-100-year hurricane that still anchors many capital models, Marsh Re said. Severe convective storms, wildfire, winter storms and flood now cause most insured catastrophe losses in North America. The January 2025 Los Angeles wildfires produced the largest insured wildfire loss on record.

For ILS allocators and the cedents buying their capacity, the report's prescription points to annual aggregate covers, second-event layers and lower-attaching layers, structures built around the accumulation of losses rather than a single event. Marsh Re said reinsurers' share of catastrophe losses has fallen since the 2023 market reset pushed retentions higher, leaving more of the cost of frequent, smaller events on insurers' balance sheets. Demand for structured reinsurance was already rising on both sides of the book, as Private Wealth Daily previously reported. Marsh Re said aggregate and second-event structures remain hard to place profitably for many programs, and capacity will go to portfolios modeled accurately and completely.

Catastrophe models for secondary perils are improving, but validation remains uneven, Marsh Re said. Loss estimates can change significantly between model releases, and results for the same portfolio can vary widely, particularly in less mature areas such as urban conflagration. The report recommends combining vendor model output with an insurer's own claims experience and validating results before using them to make decisions.