Graphic: The perfect storm

2017 looks to be a difficult year for insurance companies as extreme weather and earthquakes have caused elevated levels of economic and social costs. How insurance companies handle their obligations will come into focus as payouts need to be paid from liability reserves and cushioned by investment portfolios. Furthermore, 2017’s hurricanes came at a time when insurers are considering their portfolios as a larger source of revenue.
On the hook: Munich RE’s NatCatService estimates total insured losses in 2017 will be $117 billion, about 60% of total economic losses. Prior years had insurers picking up far less of the tab, about 42% in 2005. Hurricanes Harvey, Irma and Maria account for 83% of estimated 2017 losses.
Revenue streams: Premium revenue has grown steadily in recent years, spiking in 2016. Revenue from investment gains has been more volatile with an average decline of 5.5%** since 2012.
Altered allocations: 2014 saw the ratio of bonds to equity in insurer portfolios shift to more than 20 times as more focus was put on solvency. About 80% of bond portfolios are in investment-grade debt. Corporate debt makes up the bulk of total portfolios.
Liquidity test: Market liquidity in corporate debt has been good, while other bonds declined. Portfolio solvency will be tested if large volumes are sold to meet liabilities. Insurers have kept a steady 1.2 ratio of investments-to-liability reserves in recent years.
*As of June 30. **Arithmetic average. Sources: Bloomberg LP, Munich RE NatCatService, Securities Industry and Financial Markets Association
Compiled and designed by Charles McGrath and Gregg A. Runburg