Wildfires triggered rate hikes
Some lines of business hit by severe losses such as the wildfires this year have already seen substantial rate increases—but this is the exception rather than the rule, Adam Szakmary, director of underwriting, Bermuda, at Hiscox Re & ILS, told Monte Carlo Today.
In the mid-year 2018 rate renewals for the US and Bermuda, Szakmary said some accounts hit by losses from the wildfires were hit by rate increases of between 33 and 200 percent in the mid-year renewals, although this was mainly on utility accounts and a small sub-set of contracts.
However, he added: “The personal lines insurers hit by wildfire losses in 2017 haven’t had their renewals yet. I would expect to see further pricing pressure. We haven’t seen the kind of property damage loss caused by the 2017 fires in 2018 but it remains hot out there.
“I do suspect that to be a stabilising force on that part of the North American book.”
He added that pricing on larger, national, US accounts will be more driven by hurricane activity. “The wildfire losses might have an influence but I don’t think that it will drive up the overall renewals.”
On Bermuda, Szakmary said, he is seeing re/insurers follow Hiscox’s lead and become more hybrid players, using third party capital more often.
Hiscox has a strong quota share strategy as well as ILS strategy, including a special purpose syndicate at Lloyd’s that supports its underwriting, largely on its property-cat lines.
Hiscox is looking to diversify away from property-cat on this side of the business, he noted, as are many ILS investors.
Szakmary said more are seeking absolute returns in the form of a retrocession–type product or looking for a more diversified return from cat bond products.
“We’re looking at close to 15 years of ILS expansion and people are looking for a more diversified strategy in how they access the marketplace, so that interest is transcending property-cat,” he said.
“ILS started as a collateralised product, but some see them as most effective through the use of rated paper or fronting in what they do.”
He added that the ILS markets responded well to the 2017 losses, with most investors reloading. But even more capacity may have entered the market if rates had increased more.
Another area of growth he predicts is cyber—but he believes the market must learn to recognise the risk and price it correctly.
“For the cyber market to develop people need to be either pricing for the coverage, excluding it, or supplementing it and then creating the reinsurance products that deal with it. For the market to fully develop it needs to be broken down further.
“Typically people are talking about affirmative cyber, but most of the risk people have on balance sheets is non-affirmative cyber; that’s coming through longer-tail casualty lines or short tail more volatile business interruption coverages,” he concluded.
