International property

The market for catastrophe bonds and other insurance linked securities ('ILS') has remained robust in 2021 as reinsurers have sought greater protection against rising catastrophe losses. As of October, ILS or third-party capital had expanded to USD97 billion, a rise of USD3 billion compared with last year, with S&P reporting that around 15% of global reinsurance capital is sourced from the capital markets, through ILS structures such as funds, catastrophe bonds and collateralized reinsurance vehicles. 

 

With 2021 having reinforced the expectation that freak weather events are set to become more commonplace, so the appetite for ILS structures also looks set to continue. In February 2021 the state of Texas suffered a major power crisis as a result of three severe winter storms, with record low temperatures being recorded in some areas. 40,000 MW of generation was offline due to issues with gas pipelines, generators and frozen wind turbines. It has been reported that insured losses arising from the 'Texas freeze' could hit USD15 billion, which would make it the costliest weather event in the state's history. 

 

This year's Atlantic hurricane season has been reported as the third most active on record. Hurricane Ida made landfall in Louisiana on 29 August 2021 becoming the second most destructive hurricane to hit the US state since Hurricane Katrina in 2005. Just as the hurricane season closed in December, several US states were hit by a devastating series of tornadoes which levelled houses and factories and left hundreds of thousands without power. Losses from these events are currently estimated to be USD3 billion. Tornadoes in the US are extremely rare outside the spring and summer and this devastating event caps off a year of unusual and unmodelled catastrophe losses.

What to look for in 2022

In July 2021 Lloyd's published its roadmap for climate action. The report acknowledged the critical role that Lloyd's and the global insurance industry has in building a more sustainable, greener future. It set out the sustainability and decarbonisation ambitions of the sectors which it deems critical to a successful global transition to a low carbon economy, along with a climate action roadmap which highlights the ways in which the global insurance industry will need to support and accelerate this transition.

 

This transition will necessarily involve the consolidation and continued development of products available for established renewable lines such as offshore wind. Additionally, as new markets emerge and new technologies develop in 2022 and beyond, the global insurance industry will need to be similarly innovative in the way it delivers risk transfer products, using its expertise to innovate risk management and transfer solutions whilst investing in greener opportunities.

 

One way the industry may seek to do this is by expanding coverage to ensure capacity constraints do not limit growth in new technologies such as Hydrogen and adapting its offerings in the longer term to reflect these new risks. In the roadmap, Lloyd's has advised carriers to engage with companies in the hydrogen production chain to understand the challenges they face and the specialised cover they require. In the years coming, we should see the development of products to facilitate the progression to green energy, driving a change in the types of subject matter and risks which are covered.