Demex, a provider of technology-enabled reinsurance solutions, announced the launch of a new winter storm product to protect primary underwriters from losses caused by unexpected storms, cold temperatures and heavier than usual snowfall.
The new reinsurance solution, described as the first of its kind, builds on Demex’s successful working layer aggregated reinsurance solution for severe convective storm losses.
Although winter storms are often underestimated, they will cost U.S. insurers more than $7 billion between 2021 and 2025, according to Swiss Re.
These losses typically fall directly on the primary carrier because they typically fall outside the scope of traditional property disaster treaties.
Demex’s new winter storm product uses a carrier’s last decade of underlying claims data and overlays it with corresponding weather data to develop a sophisticated modeled loss index.
Reinsurers then provide coverage based on the index to meet the carrier’s specific risk transfer needs.
By leveraging cedent-specific claims data, Demex creates a highly accurate projected loss model, an approach that contrasts with models that use general industry data sets or are based on extensive loss studies.
Demex analysts found that 15% to 50% of storm-related losses are typically not recorded by third-party industry data sources, a gap that complicates risk pricing for reinsurers and major carriers.
Claims payments for Demex solutions work the same way as gross indemnity reinsurance. Once total model losses exceed the reinsurance attachment point, funds are transferred directly from the reinsurer to the primary underwriter.
Matt Coleman, president of Demex Re, commented: “It may seem strange to launch a winter storm product in the summer, but as Kennedy says, ‘The time to fix the roof is when the sun shines.’ We have been actively exploring how we can expand coverage for secondary risk reinsurance.
“The scale of insured losses and clear demand from major carriers make winter storms a natural target. After successfully developing and piloting the product, it is now available to all U.S. carriers. Now is the time to protect your revenue and balance sheet from the impact of another harsh winter.”
According to Demex, its SCS reinsurance solution shows that its products offer lower online rates than indemnity products (in rare cases indemnity total reinsurance is available).
The product reduces uncertainty for reinsurers by using a modeled loss index to stabilize socioeconomic factors while closely tracking indemnity losses.
Demex noted that this approach could provide cheaper, weather-based pricing for reinsurers and tailor-made coverage for primary underwriters.
