NatCat lessons: When too much market share leads to insolvency risk
P&C insurers’ biggest insolvency risk lies in their NatCat exposure accumulation, panellists say in Canadian Underwriter’s Economic Outlook 2025 webinar.
NatCat exposure has caused a rapidly increasing number of global insurer failures over the past five years, says Alister Campbell, president and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC).
Between 2000 and 2023, 568 insurance companies failed across 57 jurisdictions globally, according to PACICC’s The Global Failed Insurer Catalogue 2024. Campbell says that figure has since climbed by nearly 35% in the period since PACICC’s last report.
“Since 2000, 900-plus have failed over that period of time in 71 jurisdictions all over the earth,” he says. “There [are] failures happening elsewhere on the planet over the last few weeks.”
Insurers’ kryptonite rests in their NatCat exposure.
“In the last few years, almost a third of [global insurers] have failed for NatCat-related reasons,” Campbell adds. “[Insurers should be] thinking carefully about just how much risk you can take, because in our business, you can have too much market share.”
Risk response
Canada’s last insurer insolvency happened in 2003. But as natural catastrophe risks intensify — insurers faced the most stressful year in terms of NatCat loss in 2024 — Campbell says insurers must prepare for the “worst case scenarios.”
Insurers with a large market share that fail to consider accumulation, aggregation, and diversification patterns in their portfolios face an increased risk of failure. That’s why carriers are taking a more proactive stance in understanding and mitigating risks before disaster strikes rather than reacting afterward, panellists say.
“As I speak to underwriters, [they have a] very similar approach: trying to manage their concentration, whether that’s by higher-deductible sublimits, lack of underwriting in a concentrated area, and managing it from a leadership level,” says Denise Hall, managing director and Canadian specialty broking leader at Aon.
At the same time catastrophe modelling is getting better, it’s also “taking way longer than before,” says Hall. “Any late change in values can really cause a hiccup on getting your terms in time.”
That’s spotlighting a larger industry shift, she says. “We’re definitely seeing a larger focus and more proactivity on understanding the risk and how clients can mitigate it, versus react to it.”
Underwriters are also encouraging clients to become more resilient, says Colette Taylor, executive vice president and chief operating officer at Sovereign Insurance.
“At that first conversation we’re having with the client, we want to mitigate the risk before it happens,” she says. “We’ve got tools now where we can let our brokers, our partners, and even our clients know when they’re in the path of an exposure like wildfire.”
Risk engineers tend to be the “first line of sight” when clients face exposure they aren’t aware of, she says.
“Our risk engineers, they’re studying these risk assessment NatCat tools. They’re going in and talking to clients and saying, ‘Well, I hear you when you say you haven’t had a flood in the last 25 years you’ve been here. But it’s very likely it’s going to happen. Here are the things that you need to think about to be able to prepare for it.’”
