24 October 2017Insurance

US rate increases to spread to Europe

Rate hardening in the US and the Caribbean due to recent nat cat losses is set to unwind past price reductions in Europe, Jens-Ulrich Peter, Swiss Re head of property underwriting, EMEA, told Baden-Baden Today.

Hurricanes Harvey, Irma and Maria together with two earthquakes in Mexico caused insured losses in the third quarter estimated to exceed $100 billion, to become the costliest in history.

As a result, Bernstein analysts expect US nat cat prices to increase by an average of 10 percent and US commercial property to go up by an average of 5 percent.

“There should be some market hardening for Caribbean and US exposed reinsurance treaties, but it might be that some of the price reductions we have seen in the EMEA markets in recent years are unwound,” Peter said.

For European windstorm-exposed businesses, prices have fallen by 40 percent since 2013, he noted. The key driver for this price deterioration has been the globally benign nat cat activity in recent years. “This has now dramatically changed,” Peter said.

“While some of the other drivers are more structural in nature, we can expect the cyclical element to be unwound,” he explained.

Property prices are expected to improve, particularly in the US primary and reinsurance markets. The impact on non-US property business is expected to be very much correlated to the US price movements in the upcoming renewals, Peter noted.

Also, some wording erosions and cover widenings seen in recent years need to be unwound, he added.

Over the last years Swiss Re has consistently said that in most markets, prices and terms are unhealthy and need to return to more sustainable levels. “The recent loss events reinforce our position,” he added.

“At current pricing levels, the reinsurers’ normalised earnings do not pay much of a premium over risk-free rates.”

Rates in the property re/insurance sector had come under pressure in recent years, partially because of the absence of large losses, but also because a low interest environment attracted capital to the re/insurance sector, creating excess capital and a soft market.

Alternative capital in the catastrophe-exposed property space has put some pressure on traditional reinsurers, Peter said.

Some of these players have started to reduce their property risk appetite and have redeployed their capacity to other short tail lines such as marine, credit, engineering and some other specialty lines, he continued. As a result, these lines have also come increasingly under price pressure in recent years.

“We expect that these cyclical impacts will be unwound in the upcoming renewal seasons because capacity will be redeployed by these reinsurers at higher hurdle rates,” Peter concluded.

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More on this story

2 November 2017   Swiss Re reported a net loss of $468 million for the first nine months of 2017 after a net income of $3.0 billion in the same period of 2016, reflecting the $3.6 billion expected insurance claims from hurricanes Harvey, Irma, Maria, and the Mexico earthquakes.