Melissa to add pressure at renewals but not enough to shift market balance: Willis Re

Despite Hurricane Melissa’s significant human and economic toll on Jamaica, Cuba, and other Caribbean islands, the event’s cost to the global reinsurance sector is unlikely to alter overall market dynamics, though it may give underwriters added leverage in renewal negotiations, according to Willis Re.

, Hurricane Melissa is expected to trigger Jamaica’s $150 million World Bank catastrophe bond and other regional coverage.

However, Willis Re has indicated that the event’s overall financial impact should remain manageable for the “heavily capitalised” global reinsurance sector.

“Although Melissa reinforces the unpredictability of natural catastrophes, it is unlikely to be a capital event for well-diversified reinsurers,” the firm said in a new report.

According to Willis Re, every catastrophe reinsurance underwriter worldwide is likely to cite Hurricane Melissa when defending offers of only modest property catastrophe rate reductions or more relaxed policy conditions, using the event as leverage in renewal discussions.

“Some will reference Melissa when reminding brokers and cedants alike that even at the end of October, nothing is certain. In hurricane-hyperactive 2020, for example, two Category 4 storms – Eta and Iota – devastated the Caribbean in November. Underwriters may even recall 1999, when Lothar and Martin, a pair of ferocious windstorms, hit Europe over the Christmas break,” Willis Re added.

Although it remains too soon to quantify the total losses from Hurricane Melissa, which has brought severe destruction to Jamaica and resulted in tragic fatalities, Willis Re noted that the event is not expected to significantly affect the world’s reinsurers.

Willis Re observed, “Locally deployed catastrophe reinsurance capacity is about $1.5 billion, all in, including sovereign bonds totalling about $250 million and local general insurers’ cat programs with a limit of about $1.2 billion.

“However, the larger limits don’t sit with local carriers or the state. They’re covering international property assets.

“Even in aggregate, however, the foreseeable loss under the limits covering these assets is not sufficiently substantial to utterly upend most reinsurers’ catastrophe loss budgets.”

“Most global reinsurance treaty portfolios are calibrated for average expected aggregate losses in the region of $150 billion per year.

“Amplifying this, the constrained supply of hurricane aggregate limit during the hard-market negotiations of 2024 means losses lower down programs will not be realised.”

The firm’s report continued, “Some large-loss budgets are likely to be breached, of course. Such allowances are a product of each reinsurer’s view of risk, their expected ROE, and myriad other factors, and some will have been more optimistic than others.

“However, we can comfortably conclude that the international reinsurance sector’s exposure to Melissa, while costly, will not be a capital event for all but the most over-extended, or the very unlucky who suffer a concentration of losses from the January wildfires, SCS events and the current storm.”

As mentioned, Willis Re also suggested that the storm provides a powerful argument in favour of holding fast on policy conditions, which could restrain the much-hyped resurgence of aggregate limits at lower levels.

“Such protection is available, but although reinsurers’ surplus capital remains relatively intact at this point in the renewal season, and probably larger than it was in November 2024, we expect CUOs will now be slightly less inclined to put it dangerously at risk,” the firm’s report added.