September 2014 Bermuda:Re/insurance+ILS 41


survey the industry. Following frequent contact with independent and staff adjusters, as well as applicable state residual markets, the PCS team determined that Hurricane Arthur had not caused enough estimated damage to meet the related criteria for catastrophe designation.


In July a series of wildfires struck Washington State, leading to


several enquiries about catastrophe designation. That situation was a bit more complicated than Hurricane Arthur. PCS found multiple fires, which were classified by PCS, for determination purposes, as separate events. As a result, each would have had to reach the $25 million threshold and affect significant numbers of insurers and insureds separately.


Further, claim volume was low for each of these fires, because of high rates of uninsured homes in the affected areas. Additionally, larger commercial and municipal buildings were generally spared, so the fires did not lead to the threshold of insured losses necessary for catastrophe designation.


Industry implications


Timely catastrophe designation is crucial for the insurance and reinsurance industries. Catastrophe teams can respond to policyholders more effectively while determining the financial impacts of the event to their balance sheets.


“As the hurricane approached North Carolina, the PCS team prepared to execute its methodology, reaching out to key insurers with significant market share in the area.”


Further along the risk capital supply chain, reinsurers and the insurance-linked securities (ILS) community can use designation— especially for small PCS-designated catastrophe events—to ascertain the impact on aggregate annual loss cover and evaluate the implications of events of that type by region and over time.


With a recent increase in the severity of smaller events for perils such as


hail, winter storm and wildland fire, a keen understanding of how PCS designates catastrophes can support richer analysis and improved decision- making. The effects of these emerging threats can erode retentions and potentially cause reinsurance programmes to attach unexpectedly. A deeper understanding of catastrophe designation is the first line of defence.


Joe Louwagie is assistant vice president at PCS. He can be contacted at: jlouwagie@verisk.com


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