What property reinsurance covers

Property reinsurance protects insurers that write homeowners, commercial property, industrial all-risks, builder's risk and similar policies. It responds to physical damage and, where included in the original policies, business interruption. The biggest driver of demand is natural catastrophe risk: a single hurricane, earthquake, wildfire or flood can generate claims across thousands of policies at once.

Typical program structure

  • Quota share or surplus to support capacity and capital, common for new or fast-growing insurers and in European and Asian markets.
  • Per risk excess of loss to cap the cost of a single large fire or explosion.
  • Catastrophe excess of loss in several layers to protect against one large event.
  • Aggregate covers to limit the effect of many medium-sized events, such as severe convective storms, in one year.
  • Facultative for individual large or unusual risks outside the treaty.

Catastrophe modeling and data

Property catastrophe pricing relies on probabilistic models that simulate thousands of possible events against the insurer's exposure. Results are expressed as probable maximum loss (PML) at given return periods and as average annual loss. Model output is only as good as the input, so reinsurers look for accurate addresses and geocoding, replacement values, construction type, occupancy, roof age and secondary modifiers. Better data often means better terms.

US market specifics

The US is the largest property catastrophe reinsurance market. Florida insurers renew mostly on June 1, ahead of hurricane season, and their programs interact with the state's Florida Hurricane Catastrophe Fund. Other US programs renew on January 1 or July 1. Severe convective storm, wildfire in the West and earthquake in California and the Pacific Northwest are major perils. Rating agencies such as AM Best and state regulators review whether insurers' reinsurance protects them adequately.

Lloyd's, Bermuda, Europe and Asia

Bermuda became a property catastrophe hub as new capital formed reinsurers there after major US catastrophe events, and it is also the main domicile for catastrophe bonds and collateralized reinsurance. Lloyd's syndicates write property catastrophe, per risk and facultative business worldwide. Large European reinsurers provide capacity for European windstorm and flood as well as global programs, largely renewing on January 1. In Asia, Japanese programs renew largely on April 1, with typhoon and earthquake as peak perils; other Asia Pacific programs center on January 1.

Key wording issues

  • Definition of loss occurrence and hours clauses for windstorm, flood, earthquake and wildfire
  • Treatment of business interruption, contingent business interruption and civil authority losses
  • Exclusions for terrorism, nuclear, cyber, communicable disease and war
  • Reinstatement provisions and second-event protection
  • Loss adjustment expenses and demand surge

Alternative capital

Insurance-linked securities provide a growing share of property catastrophe capacity, through cat bonds, collateralized reinsurance, sidecars and industry loss warranties. They suit higher layers and multi-year protection; traditional reinsurers usually remain essential for lower layers and broader coverage. See excess of loss structures for details.

How Polis Re supports cedents

We help property writers and captives organize exposure data, compare structures and reach licensed reinsurance intermediaries and authorized reinsurers. For primary cover see commercial property insurance, or request reinsurance support.