The US insurance market continued to transition beyond the COVID-19 pandemic, which saw supply chains destabilized and the severity and frequency of loss increase across industries with complex risk exposures. The 2020-2021 year set records for claims losses relating to extreme weather and natural catastrophe (NatCat) events. Tornadoes, floods, wildfires and hurricanes accounted for more than US$250 billion of loss (US$120 billion insured), and the second-highest claims loss incidence on record.

Although many NatCat events fit within climate change and general underwriting expectations, the priority amongst insurers, (re)insurers and business owners is adapting to a rapidly evolving agenda. With roughly 50% of losses being uninsured, urgent change and a review of placement strategies are now required to close the gap and restabilize the commercial sector coverage. The built-in flexibility captives offer make them a viable option for managing — ideally mitigating — risk exposures related to climate change.

A captive can be used to good effect to structure a portfolio of complex commercial property insurance in a higher-risk geography. This structuring may involve stratifying the risks between NatCat (or CAT) event losses versus what we term as "attritional losses." A good starting point is applying a size threshold from a predicted loss standpoint including attritional losses.

This whitepaper dives into these topics:

  • Stratifying risks between NatCat event losses and attritional losses with sublimits, retention options and loss severity
  • Packaging multiple risks within a captive and the benefits of direct control over cost and risks retained on the balance sheet
  • Inflation's impact on pricing and underwriting criteria and the impact of the prevailing market on commercial property insurance placement

View whitepaper

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Author Information

Steven  McElhiney
Steven McElhiney
Sr. Vice President & Global Director of Reinsurance