S-P Revises Cat Criteria
Standard & Poor's said it is revising its rating criteria for property-casualty reinsurers to more consistently reflect their catastrophic modeling methods
S&P director Damien Magarelli said that the revised rating criteria acknowledge that the most effective source of p-c catastrophic modeling is data provided by the reinsurers themselves. "Therefore, the approach we are going to adopt is to use a reinsurer's own modeled output, and verify consistency by obtaining additional relevant data," he said.
Previously, a 1-in-100 year capital charge was applied to some reinsurance companies, but according to the new criteria, a 1-in-250-year charge will be applied to all reinsurers globally. "The basis for the 1-in-250-year versus 1-in-100-year charge is recognition by Standard & Poor's that catastrophe losses in general are increasing from the perspectives of both frequency and severity," Magarelli said.
A recent Standard & Poor's report states that the severity of property catastrophe risks is increasing with population growth in coastal areas, inflation and higher building values. In the U.S. more than half of the population now lives within 50 miles of a coastline.
The Environmental Protection Administration estimates there were three times as many natural catastrophes in the 1990s than there were three decades ago. "As a result, injured losses from natural disasters are 15 times higher today than they were in the 1960s, even adjusting for inflation," the report stated.
Mr. Magarelli said reinsurers may be ultimately forced to retain less risk as a result of the new criteria but there are too many other factors at play to make such a definitive judgment.
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