Brexit’s shadow over renewals
The uncertainty around the nature of UK’s departure from the EU is causing re/insurers to protect themselves against whatever the worst-case scenario might be, as they prepare for the January 1 renewals, according to Mike Van Slooten, head of market analysis, Aon Benfield.
“Brexit will be a shadow that hangs over the renewals, depending on whether we get some clarity over the next few weeks,” he said.
Van Slooten added that there is still overcapacity in the market, and this dynamic hasn’t changed despite the series of natural catastrophes last year.
“We are seeing some demand growth around the world, but we think there’s still more than enough capital to soak that up,” he said. “Our general feeling is that it will create some pressure in the January 1 renewals.”
Europe is different from other markets in that it hasn’t seen big losses for some time. Combined with Brexit, these are the two differentiating factors that will define the renewals negotiations in Baden-Baden.
Van Slooten noted that insured natural catastrophe losses in the first half of this year were at their lowest level for more than a decade, particularly in their impact on the reinsurance market.
There have been some high-profile events in the last few weeks including hurricanes Michael and Florence and Typhoon Mangkhut. Van Slooten said these will cause some significant insured losses, but the impact on the reinsurance market is not expected to be that substantial.
Van Slooten anticipates further consolidation in the European markets due to the twin-impact of the effect of alternative capital on catastrophe pricing over the past few years and continued low interest rates.
“That’s putting a lot of pressure on earnings; some companies are better at withstanding that than others,” he added.
“The margin in that business is much lower as a result of alternative capital. That business was generating a significant portion of the underwriting profit that reinsurers were achieving before—not so much now. It makes it much more difficult for them to achieve their cost of capital.”
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