More cats will hit reinsurers’ earnings in 2019: AM Best

AM Best expects reinsurers’ earnings to see further erosion in 2019 following another year of major catastrophe losses, but the spate of catastrophe events may prolong the positive momentum that reinsurance pricing has experienced throughout 2019.

In a new Best’s Commentary, titled “2019 Cats Expected to Once Again Dent Reinsurance Earnings”, AM Best states that recent events such as Hurricane Dorian in the Caribbean and US and typhoons Faxai and Hagibis in Japan are likely to have a meaningful impact on the profitability of and pricing conditions for global reinsurers and retrocession players.

The loss creep from last year’s Typhoon Jebi into 2019 has been a learning curve for many market participants, and as a result, some reinsurers to date have been conservative in providing loss estimates.

AM Best anticipates a continuation in rate increases for the January 1, 2020, and the April 1, 2020, renewal seasons, with Japan-exposed reinsurers demanding higher returns for underwriting these exposures.

Additionally, most market participants may demand higher rates to mitigate the potential increased losses in acknowledgment of a higher frequency of these larger-scale events.

Additional capacity crunch is possible in the retrocession market, the rating agency said. Rate increases in the retrocession space eventually should trickle down to the lower layers in the reinsurance sector, further pushing rate increases in the short to medium term.