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The reinsurance market is poised to remain vibrant following recent catastrophe events, says David Priebe of Guy Carpenter & Company.
While the reinsurance product has delivered compelling balance sheet solutions since its beginnings, recent catastrophic events in Australia, Mexico, the Caribbean and the US have created a perfect opportunity for the market to showcase its ability to adapt solutions to the unique risk profiles of individual clients seeking to manage capital events.
The value of reinsurance as a capital substitute was very apparent during the 2008 financial crisis, when debt and equity financing was difficult for our clients to obtain. In its place, the reinsurance market demonstrated its ability to protect balance sheets, manage earnings and reduce volatility. Now, the recent series of catastrophic events—earthquakes in Mexico, hurricanes Harvey, Irma and Maria—is reminding cedants that reinsurance is also one of the most effective ways to protect corporate capital bases from these events.
The recent loss events have the potential to make the third quarter of 2017 one of the costliest in the insurance industry’s history. While it is still early and loss estimates will likely fluctuate, some analysts expect insured losses of at least $100 billion. According to AM Best, total catastrophe losses of $75 billion would mean a combined ratio of 106 percent for the world’s top 20 reinsurers. Although there appears to be little risk to solvency, individual insurers’ earnings will be impacted and in some cases excess capital positions and catastrophe budgets may be eroded, which could result in ratings actions.
Guy Carpenter, David Priebe, Reinsurance market, Catastrophe, North America