Only a brave underwriter will volunteer a reduction now
Insurers face rate increases particularly in regions affected by nat cat events in the third quarter, but pressure is also rising in other regions, Tim Paske, managing director at re/insurance broker BMS, told Baden-Baden Today.
Hurricanes Harvey, Irma, and Maria all made landfall in the US, resulting in above-average activity in a year of unusually frequent and severe natural catastrophes. Insured losses from natural catastrophes in the third quarter are expected to exceed $100 billion—likely to wipe out global reinsurers’ annual earnings—and it could become a capital event for some players, according to S&P Global Ratings.
In addition, wildfires in California are set to result in a significant loss, Paske said. The fires in Northern California have consumed more than 170,000 acres and destroyed more than 3,500 structures, according to data provider AIR Worldwide. Several wineries have also been impacted.
“A lot of that winery business is placed into the London Market and several wineries have been affected. That is adding to the pain,” Paske said.
Lloyd’s is already facing significant losses from hurricanes Harvey and Irma. Combined, these two events are expected to cost the Lloyd’s market $4.5 billion, net of reinsurance.
Moody’s expects that the combination of losses from the three major hurricanes will result in an overall pre-tax loss for Lloyd’s in 2017.
“There is a general feeling that the nat cat losses are moving from a significant earnings event to probably a capital event,” Paske said. “The market sentiment is indicating a prognosis that these events could well be the catalyst required to kick-start harder market conditions,” he added.
Paske added that he had already seen rate movements in certain lines, for example, cat, stock, cargo, and yacht. “All these product lines are moving northwards in varying degrees. In case of yachts, stock in wind-exposed areas, you are seeing an up to 100 percent increase in rates.
“Some markets are going to mandate across-the-board rises, while others will leave it to the underwriter to choose. The general view, however, is that it will be a brave underwriter who volunteers a reduction,” Paske said.
While noting that “performance, of course, comes into it,” he said that generally, catastrophe reinsurance is likely to cost more, wherever you are.
“If you are writing in the Caribbean, on the US East Coast or in the Gulf of Mexico, it is definitely going to cost you more to buy your cat cover,” he said.
In order to deploy the capital, investors are going to want to see rates rise, Paske added. “I would expect underwriters to become more judicious as to how they apply the capital and to which product lines and what pricing levels.
“Baden-Baden is going to be very interesting and will undoubtedly give the market an indication of where the retro market is moving,” he concluded.
Get the latest re/insurance news sent to your inbox every day - Sign up to our free email newsletters
Other stories from the Baden-Baden Day One newsletter
EMEA will not escape the fallout from the US storm losses: Swiss Re
Disruption will be central theme of Baden-Baden 2017 meeting
Excess capital will protect ratings
Lloyd’s and Bermuda reinsurers at risk from nat cat losses
Cyber physical damage a growing concern
US–EU agreement unlikely to mean demise of legal entities
Cedants want tech to deliver transparency
Blockchain faces uphill battle against insurers’ scepticism
Cat capacity up as reinsurers seek growth
Reinsurance innovation will help enable sustainable growth
Using Lloyd’s to expand brokerage business
European reinsurers will benefit if NFIP buys more cover
Capacity will move to stable Europe
Reinsurtech set to transform the industry
In Baden-Baden to negotiate—and drink beer
