Reinsurance rates down 1.2% at Jan renewals: JLT Re
JLT Re's global property-catastrophe reinsurance index fell 1.2 percent at the January 1 renewals, despite 2018 being one of the costliest years in terms of catastrophe losses.
The reinsurance broker suggested there had been a relatively modest amount of loss-affected business up for renewal at January 1, 2019. By comparison, rates had increased 4.8 percent at January 1, 2018, but this year's decline left the index below levels recorded in 2016, and approximately 30 percent below 2013 levels.
2018 was the fourth mostly costly catastrophe year ever in real terms and featured a series of diverse and dispersed catastrophes in 2018 – including hurricanes Florence and Michael, typhoons Jebi, Mangkhut and Trami, flooding in Western Japan and the Californian wildfires – costing re/insurers over $80 billion.
This follows record insured catastrophe losses of $150 billion in 2017. Both 2017 and 2018 from the most costly two-year period ever for insured cat losses, although JLT Re suggested this is unlikely to challenge the combined, inflation-adjusted, reinsured losses sustained in 2004 and 2005.
“Despite another active catastrophe year in the United States, property-catastrophe rate changes were modest at 1 January 2019. loss-free layers saw relatively muted movements, typically falling within a range of flat to down 5 percent," said Ed Hochberg, CEO of JLT Re in North America. "Strongly performing accounts renewed towards the lower end of this range as cedents argued (often successfully) that another clean year merited risk-adjusted decreases in 2019. Loss-impacted layers generally saw price rises, but outcomes varied depending on losses, geographies, exposures and relationships.”
While pricing property-cat rates were down, areas where rates increased were restricted to classes suffering sizeable losses or where performance has deteriorated.
A number of lines in the US casualty reinsurance market showed signs of tightening as reinsurers faced an uptick in loss ratios and an increase in the frequency of severe losses. Loss experiences were also acute in the property-catastrophe market following 2018 cat events. Large risk losses in several property and specialty classes occurred throughout the year, although abundant capacity generally offset upwards pricing pressures here, JLT Re noted.
This January 1 renewals also saw a more challenging environment for insurance-linked securities (ILS) funds, with claims mounting from Hurricane Michael and the California wildfires, both of which were $10 billion plus events, as well as Typhoon Jebi, the strongest typhoon to hit Japan in 25 years.
David Flandro, global head of analytics at JLT Re, commented: “Sustained capital inflows have offset mounting pricing pressures to bring relative stability to the reinsurance market over the last several years.
"Record levels of dedicated sector capital at year-end 2018 once again helped ensure continued, plentiful capacity across most lines at 1 January 2019. A small portion of excess sector capital was nevertheless absorbed in 2018 by sizeable insured catastrophe losses in the second half of year, a reduction in third-party deployable capital, higher demand for reinsurance and a renewed focus on underwriting discipline, as shown, for example, by reduced stamp capacity and higher capital requirements at Lloyd’s.”
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