Harvey and Irma unlikely to change structure of resilient market
Large losses such as those from hurricanes Harvey and Irma are unlikely to have an impact on the dynamic or structure of the reinsurance market, Andrew Newman, president and global head of casualty at Willis Re, told Monte Carlo Today.
“Even at its peak, this was a modelled loss. The big and stable reinsurers will have provisions for something like this happening,” Newman said. “I don’t think either event is so big as to cause real harm to the structure of the market.”
Newman suggests that select classes of business—particularly in North America—will probably see an end to some price reductions, but there will be only technical adjustments and he does not forecast any supply-demand imbalance leading to a classic hard market.
The question that Newman believes will be answered over the next couple of days will be whether the price correction spills over into other classes of business and other territories.
“It’s still hard to know the full extent of the damage in Florida,” he said, “but my suggestion is that it is unlikely to.”
He suggested that the losses are not big enough to have any real capital impact across the industry, and that clients have a lot of choice from a lot of capacity, which will also keep prices low.
“This relates to the structural changes in the industry, where there was a lot of capital sitting outside the market. Whether it comes in or doesn’t, it’s poised to come in at quite low price change points,” he said.
“There is capital that will come into the market; it might only need a 10 to 15 percent price adjustment. When that happens, the supply-demand dynamic changes and clients have options. That acts as a suppressant to the direction of the market.”
Overall, Newman believes, over the last five years reinsurance has been an extremely valuable financing technique. The losses in Florida will again show how reinsurers step up and pay claims efficiently—a great advertisement for the industry.
“The fact that pricing has gone down is not simply a reflection of the change of values, it’s also a function of improved modelling, risk management, engineering, and 10 years of having no major catastrophes,” he concluded.
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