Rate increases likely to continue in 2018, says S&P in renewals report
Rates will likely continue to increase through 2018 as opposed to fizzling out, S&P Global Ratings has suggested in a new report.
The report, called ‘Reinsurance Pricing Was Up At The January Renewals, But Will The Momentum Continue Or Fizzle Out?’ suggests that, in aggregate, global reinsurance pricing was flat to up about 5 percent in the January 2018 renewals.
It noted that specific rate increases varied by line of business, whether the policy had experienced any losses, and region--consistent with our expectations.
With Hurricanes Harvey, Irma, and Maria; the Mexico City earthquake; and the record-breaking California wildfires, 2017 was a dramatic reversal from the previous five years of relatively minor catastrophe activity. These events and others racked up roughly $130 billion in insured losses globally. These losses will likely wipe out the reinsurance sector's 2017 annual earnings and erode the capital of certain reinsurers.
"We continue to maintain a stable outlook on the global reinsurance sector for the next 12 months and on the majority of the reinsurers we rate," said S&P Global Ratings credit analyst Taoufik Gharib. "In general, it seems that during the 2018 January renewal season, reinsurance pricing stopped its downward trajectory, reaching an inflection point in the underwriting cycle. Directionally, the trend is positive."
But S&P stressed that the “seminal question” is whether the pricing increase momentum during the January renewals will persist through the rest of 2018 and into 2019.
“The January renewal season usually sets the tone for the rest of year, as more than half of the global reinsurance/retrocession coverage is renewed during this period. In addition, the natural catastrophe losses typically take a few quarters to work their way through the system and be fully digested by the industry as initial rate increases are absorbed, set reserves develop, claims are paid, and disputes are settled,” the rating agency noted.
“We believe the rate increases will continue through the remainder of the year, especially considering that Florida and Puerto Rico will be up for renewal in the first half of the year. Those markets will undoubtedly experience double-digit rate increases given the magnitude of the losses they suffered in 2017. In addition, rate increases by cedants in their primary lines will help the pro rata reinsurance, as will the rate increases on renewals of portions of multi-year programs (especially in loss-affected lines).”
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