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27 December 2019 Insurance

A hard market widely expected in 2020: industry poll

The re/insurance industry is expecting a hard market to fully materialise in 2020, according to a comprehensive poll of Intelligent Insurer’s online readers and other key executives from the industry.

Asked how they think reinsurance rates will behave in 2020, a clear majority said they expected them to either harden significantly or harden a bit. Although 15 percent said they would remain flat, only 3 percent said they think they will soften in 2020.

The sentiment in the market was characterised by one anonymous respondent who said: “Most of my company’s treaties renew in July, so we have already experienced a significant hardening of market pricing. We expect the 2020 change to be more moderate, but also upwards.”

Respondents offered various explanations for why they believed rates would increase. Of those who said they expect big rate hikes, Peter Mousley, head of property treaty, Rokstone Re, said: “The capacity shortage in retro reinsurance will lead to a significant change in retro pricing which in turn will lead to a revision in the perceived margin on the reinsurance of direct writers.”

One pointed to the lag in reinsurance rates’ increasing in relation to insurance. “The reinsurance cycle is behind insurance (and has yet to get its mojo back!),” said Simon Bird, active underwriter at Brit Global Specialty.

Others pointed to reserve shortages, increased cat losses and an increased use of technical pricing as reasons for the hardening—but some offered caution. “Technical pricing could justify significant hardening but the excess capacity will leave reinsurers and investors somewhat disappointed by the degree of rate,” said one respondent.

A number of respondents argued that the question was moot, and that every line now has its own cycle. Stephen Card, chief executive officer of Carbon Underwriting, explained: “Many lines have suffered heavier than market average loss ratios and these will be well known across the market.

“As some withdraw, rates will increase further and especially as there seems to be a ‘flight to quality’ among reinsurers who are increasingly looking to back the historically profitable clients more heavily, even at the cost of concentration of exposure.”

Another added: “The days of a global market cycle are gone—technical underwriting and regional differences have put paid to that world.”

A few suggested that rates could still soften. Their argument was mainly around the ability of capital to move so quickly into the industry. “Capital entry/exit is now so flexible that ‘hard’ is extinct,” said Robert Arvanitis, chief executive officer of Risk Finance Advisors.

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