Property-cat pricing at mercy of the alt cap market
Alternative capital is driving a great deal of structural change in the market, and recent M&A activity may signal further deals, but the market continues to be heavily influenced by the global reinsurance leaders, according to Robert DeRose, senior director, global reinsurance ratings, at AM Best.
DeRose spoke at AM Best’s 2018 Reinsurance Market Briefing at the Monte Carlo Rendez-Vous de Septembre. Other speakers included Greg Carter, managing director, analytics at AM Best Europe.
The rating agency is concerned that property catastrophe pricing is at the mercy of the alternative capital market, as it is not as heavily influenced by the traditional reinsurance market as has historically been the case.
“This is an import distinction as regards current market dynamics,” said DeRose. “Any hope for near-term improvement in the market is directly correlated to the current level of excess capacity in the overall market.”
DeRose added this has been compounded by the continued flow of alternative capacity seen in Q4 2017, and through 2018—which had helped offset the collateralised capacity that is currently trapped until losses from 2017 work their way through the settlement process.
AM Best estimates a combined ratio of approximately 94.8 percent and a return on equity of 8 percent for the full year 2018 for the global reinsurance composite.
DeRose mentioned that consolidation in the global reinsurance market is likely to continue, which could help improve the efficiency of the market’s overall capacity, and also operational discipline.
He also noted that large players are making significant investments in technology and are supporting clients in insurtech.
Reinsurers are developing insurtech initiatives to find ways to position themselves better with their cedant clients.
“When you think about personal lines, or even commercial, insurtech is becoming a necessity,” he said. “It needs to be easier to buy insurance.”
Carter added that the traditional chain has been in place for many years, and the idea of players trying to short-circuit the chain is not new.
“That effort has been under way for some time,” he concluded.
