No general reinsurance rate firming but pockets of tightening exist, says JLT Re

There appears to be no general firming of rates at the January reinsurance renewals, although certain areas show some signs of tightening, according to JLT Re. It said reinsurance renewals broadly defied early expectations of post-loss firming for the second consecutive year at 1 January 2019, and reinsurers’ desire and ability to underwrite risks remained healthy overall. According to JLT Re, market conditions deteriorated in some areas as dampened reinsurer appetite, as well as increasing demand, was seen for classes that suffered sizeable losses or where performance has deteriorated in recent years. In particular, it pointed to a number of lines in the US casualty reinsurance market, which had seen an increase in loss ratios and in the frequency of severe losses, where there were early signs of tightening of rates. Keith Harrison, CEO UK and Europe, JLT Re, said: “A combination of increased severity, social inflation and instances of adverse reserve development has seen reinsurance margins squeezed in a number of casualty lines. This led to more cautious risk appetites, downward pressure on ceding commissions and some upward pressure on reinsurance rates. Specifically, commercial auto, professionally liability, medical malpractice, per person workers’ compensation and umbrella/excess casualty all experienced more challenging renewals than in recent years.” The property-catastrophe market had also seen major losses, notably from Hurricanes Florence and Michael, Typhoons Jebi, Mangkhut and Trami, flooding in western Japan and the Californian wildfires, which in total cost (re)insurers more than $80bn. However, this only resulted in a modest decline and JLT Re said the cost of property protection remains competitive, with global property-catastrophe pricing approximately 30% below 2013 levels. It also pointed to a number of large risk losses in several property and specialty classes in 2018, although in this case, abundant capacity generally offset upwards pricing pressures. According to JLT Re, 2018 was the fourth most costly catastrophe year ever in real terms and followed record insured catastrophe losses of $150bn in 2017. Together, 2017 and 2018 constitute the most costly two-year period ever for insured catastrophe losses. The specialty market saw strong levels of capacity offset any upward pricing pressures that came from successive years of rate decreases and rising loss trends, said JLT Re, and most programmes were broadly flat or slightly reduced in cash terms. David Flandro, global head of analytics, JLT Re, said: “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.” Early JLT Re analysis has suggested that alternative capital growth in 2018 abated for the first time since the global financial crisis, consistent with the tightening observed in the retrocession market as some investors pulled back allocations due to what were perceived as disappointing returns throughout the year, continued loss creep from Hurricane Irma and another series of costly catastrophe losses in 2018, said JLT Re. Nevertheless, it added: “This is a market which has clearly matured since the days when large catastrophes created massive price volatility. The reinsurance sector today remains exceptionally well capitalised, even at a time of macroeconomic change and unprecedented catastrophe loss activity.” Mr Flandro concluded: “Loss experiences and the macroeconomic environment will play an important role in shaping the reinsurance market in 2019. Another large-loss year could test the limits of carriers’ capital resilience, as well as investors’ appetite for reinsurance at a time of capital market volatility. Carriers’ balance sheets could also come under additional strain as the economic cycle shows signs of shifting for the first time since the immediate aftermath of the financial crisis. Reserving trends and asset leverage remain key sector drivers. After a prolonged period of low yields and disinflation, the spectre of sudden movements in interest rates and asset prices bring important supply implications.”

No general reinsurance rate firming but pockets of tightening exist, says JLT Re

Want to read this article?

Read Next

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Want to read this article?

Read Next

Insurtech partners with USAID on climate adaptation programme

ICEYE in data collaboration with Juniper Re on flood and wildfire

Senior appointments in Lockton’s crisis management team

European rates up overall but financial and cyber lines falling: Marsh

European Parliament approves regulation to tackle forced labour

Related Articles