Rate rises less than reinsurers hoped for

Make text smaller Make text larger

  • No spike: this graph shows year-over-year US property catastrophe reinsurance rate movement, using 100 in 1990 as a baseline (Graph by Willis Re)

    No spike: this graph shows year-over-year US property catastrophe reinsurance rate movement, using 100 in 1990 as a baseline (Graph by Willis Re)


Reinsurers saw lower rate increases than they had hoped for after one of the biggest insured loss years on record during the January 1 renewals, a leading broker has reported.

Willis Re, in its report entitled Extreme Weather — Calm Market, said pricing across global property catastrophe and risk programs was seeing average adjusted increases of between 0 per cent and 7.5 per cent with a few outliers either side of this range.

“Unfortunately for reinsurers, the catastrophe losses of 2017 are coinciding at a time when profitability in non-catastrophe lines is constrained and prior-year reserve releases are slowing,” Will Re stated.

“However, pricing corrections have not seen a significant spike due to the combination of strong reinsurance market capitalisation, losses being split over a number of different events and the fact that a large tranche of the losses were retained in the primary market.”

Willis estimated recent catastrophe losses, which include hurricanes Harvey, Irma and Maria, earthquakes in Mexico and the wildfires in California wine country, at around $136 billion.

The scale of the losses wiped out a full year’s earnings for some reinsurers and raised hopes of a spike in rate increases for the key start-of-year renewals.

One of the reasons it did not turn out that way was the “muted” impact on capital, noted by Willis from reinsurers’ third-quarter earnings reports. The broker said capital impairments were in the range of 5 per cent to 7.5 per cent.

Another reason was the resilient insurance-linked securities market, which comfortably weathered its first real test, according to Willis Re, with investors prepared to recapitalise funds and provide liquidity for trapped capital. Investors saw “modest spread increases” for affected perils.

James Kent, global chief executive officer of Willis Re, said: “Clearly the 2018 renewal season will for many reinsurers be a disappointment in terms of the rating levels achieved.

“However, this must be balanced against the ability of the market to provide buyers with stability of capacity at reasonable prices with an orderly renewal process, which demonstrates the growing advancement of the market.”

He added: “As society as a whole is starting to look more closely at the role the global reinsurance market can play in helping to close the economic loss gap, the stability of the market bodes well for its future development.”

Other findings of the report were:

• Catastrophe losses have stopped a further downward movement in risk adjusted rates in most markets and classes.

• The continued supply of capital has helped curtail widespread increases in risk-adjusted rates on loss free portfolios.

• Evolving cyber threats are a major concern for the industry in 2018. Recognition of silent cyber-risk — potential cyber-related losses on policies not specifically designed to cover cyber threats — continues to grow in the market with reinsurers trying to assess potential aggregation levels.

• Merger and acquisition transaction volume in the global insurance sector finished 2017 on a par with 2016’s $49 billion.

You must be registered or signed-in to post comment or to vote.

Published Jan 3, 2018 at 8:00 am (Updated Jan 2, 2018 at 5:53 pm)

Rate rises less than reinsurers hoped for

What you
Need to
Know
1. For a smooth experience with our commenting system we recommend that you use Internet Explorer 10 or higher, Firefox or Chrome Browsers. Additionally please clear both your browser's cache and cookies - How do I clear my cache and cookies?
2. Please respect the use of this community forum and its users.
3. Any poster that insults, threatens or verbally abuses another member, uses defamatory language, or deliberately disrupts discussions will be banned.
4. Users who violate the Terms of Service or any commenting rules will be banned.
5. Please stay on topic. "Trolling" to incite emotional responses and disrupt conversations will be deleted.
6. To understand further what is and isn't allowed and the actions we may take, please read our Terms of Service
7. To report breaches of the Terms of Service use the flag icon

  • Take Our Poll

    Today's Obituaries