By Mia MacGregor

Jan 29 - (The Insurer) - New developments and construction in high-risk areas are major contributors to the growth in annual catastrophe losses, according to (re)insurance CFOs speaking at the Fitch Ratings Insurance Insights event in New York.

Speaking on a panel discussion, Hamilton Insurance Group CFO Craig Howie noted that a few years ago, the industry’s 10-year average for catastrophe-type events was around $70bn. The five-year average shows this has grown to about $100bn annually.

"Now, the new normal is closer to $150bn in events each year," he said.

Howie also highlighted the growing impact of severe convective storms, which have caused more than $50bn in losses over the past two years, many of them in the central US.

“What you're seeing are hailstorms, tornadoes and other storms hitting areas that were once farmland but are now suburbs of major cities. Housing developments in these fields are transforming agricultural losses into significant insurance losses,” he explained.

Similarly, high-risk areas like the California coast are prone to significant losses from events such as the recent wildfires.

“People keep building in harm's way,” said Tom Weist, executive vice president and CFO at Tokio Marine HCC.

“It's really difficult to have subsidised insurance for someone on the coast or beside a river. People complain about the [National Flood Insurance Program], arguing that it’s not fair to their constituents, but the issue is that they keep rebuilding every three years after a flood in the same place.”

Weist added: “If people keep building in harm's way, they have to pay higher homeowners insurance."

Hamilton's Howie predicted that the California wildfires will ultimately be an earnings event rather than a capital event for the insurance industry.

“We've seen events in our history where they've eroded earnings and some companies had to raise capital. This isn't going to be that kind of event. However, the economic losses will far exceed the insurance losses,” he said.

Howie also raised concerns about the California Fair Plan, emphasising its underfunding.

“They don't get enough funding. It's almost like a last-resort option for people who can't get coverage elsewhere. The idea behind it is good, but my concern is the execution. We're going to find that out once we see the claims from these wildfires,” he explained.

Howie also highlighted potential gaps in homeowners insurance coverage in California, emphasising the need to assess whether individuals are properly insured.

"If they no longer have a mortgage on a home purchased 20 years ago, did they maintain insurance even though it's no longer required? Are they underinsured and keeping up with the cost to rebuild? These factors will influence the losses paid out based on policy limits."

In addition to natural catastrophe events, the panellists discussed other large risks, such as cyber catastrophes.

Tokio Marine HCC's Weist noted: “Business interruption is always one of the top losses in our simulations and disaster scenarios.

“We can mitigate this by implementing systemic cyber exclusions or limits. While we are one of the largest cyber writers in the US, we have aggregate limits to protect against large events.”

Hamilton's Howie emphasised the growing threat of cyber catastrophes, stating: “At our company, a major concern is cyber catastrophe. We don’t write cyber reinsurance in our book. While some policies include general liability coverage for cyber, we don’t write specific cyber policies because we’re unsure what a cyber catastrophe would look like.”

He continued: “I’m not convinced that existing models fully understand the scope or impact of such an event across the industry.”