Rates will now increase as reinsurers refill their depleted cat reserves
Reinsurance rates will increase almost across the board in the aftermath of losses from hurricanes Harvey, Irma and Maria as reinsurers “refill the buckets” in anticipation of future cat losses, Axel Freiboth, managing director, North America, Hannover Re, told PCI Today.
He said that any changes in rates will vary by line and will differ between the primary and reinsurance sides in some instances. But he expects that rates on US property insurance will increase across the board and this will also be reflected on reinsurance property business.
“Through a combination of many years of rate decreases and these recent losses, reinsurers have now depleted their overall cat fund—they need to refill the bucket to pay future claims,” he said. “I also believe that markets that have not been directly affected by losses will need to carry some of the burden.”
Freiboth said he has seen signs of a wider hardening of the market on some of the first indications on renewals pricing on other lines including marine. “There are signs of an overall momentum for rate increases,” he said.
What is more, the momentum towards rate increases will likely be supported by providers of collateralised solutions, many of which have collateral ‘trapped’ in their structures while losses and claims are calculated. Most have reloaded their structures but will now be seeking higher rates to compensate for the fact that they have cash tied up, Freiboth said.
“They will be looking to earn not only the cost of capital on their new structures—they will also need to do the same for the money that is trapped, so they will be looking to increase rates as well,” he said.
The biggest question is whether this effect will also trickle into casualty business, he said. “Our expectation is that there will be a greater drive to achieve the minimum rates that at least cover the cost of capital on all business segments. That should stabilise casualty rates, and we may even see some increases.”
He added that he expects cyber risk to be a big discussion point at PCI as it becomes an increasingly important line of business for insurers and reinsurers alike. This is a growing line of business for Hannover Re but he said the company is confident in its understanding of any aggregation risk in this line—something that has been highlighted as a concern by some reinsurers.
“We provide a backstop to clients, covering the financial losses related to such an event. While we are aware that there is an element of systemic risk in relation to this, we do monitor that carefully and we are confident we have a handle on our exposures,” he said.
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