Cat capacity up as reinsurers seek growth
Reinsurers are preparing to expand their nat cat exposure at the upcoming January renewals as historically high nat cat losses in the third quarter boost rates.
“We’ve already seen companies talking about increasing capacity in advance of the January 1 renewal season,” Graham Coutts, Fitch Ratings EMEA head of reinsurance, told Baden-Baden Today.
“Hiscox is a good example of this; they have already said they expect to take advantage of rising rates.”
Bermuda-based specialist re/insurer Hiscox has unveiled plans to increase the 2018 capacity for Syndicate 33 at Lloyd’s by £450 million to £1.6 billion (by $593 million to $2.1 billion), driven by improving market conditions.
Insured catastrophe losses from the recent US hurricanes and Mexican earthquakes which are expected to exceed $100 billion will lead to price rises on London Market insurers’ loss-affected lines and could also affect wider market pricing trends, according to Fitch Ratings.
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 5 percent as a result of insured losses caused by hurricanes Irma, Harvey and Maria.
“There are certainly expectations that there will be opportunities for reinsurers who are willing to take them,” Coutts said.
Prices in property/casualty have been under significant pressure in recent years due to an absence of large losses and overcapacity in the market, but this might change.
“The fact that a large number of reinsurers will have taken losses and some of them will have hits to their capital as well, reduces the capital available in the market,” Coutts said.
Market observers are particularly keen to know how the alternative reinsurance market will react to the losses. P&C coverage through insurance-linked securities (ILS) has grown significantly in recent years, contributing to the overcapacity in the reinsurance sector.
“It is still unclear what will happen with the overall ILS capacity in the market, some of which may be locked up in disputes over the next few months. If the capacity of the market to reload is limited we might see a more widespread increase in rates,” Coutts said.
There are also market dynamics that are set to limit the potential for rate increases.
“There is excess capacity in the market which might limit the amount that rates will rise,” Coutts noted.
“The losses have not been as big as they could have been. A very large loss event, such as a large hurricane making landfall in Miami, would have brought a much bigger effect on overall rates,” he concluded.
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