Flat renewals in January, however mid-year renewals could see price rise
Hopes of a decent price rise
at the 1 January renewals were dashed as the reinsurance contracts environment wasn’t too encouraging. The industry was
expecting a rebound in pricing
given that 2018 saw insured losses
from catastrophic events at $79m,
the fourth highest according to data
According to preliminary Sigma
estimates, insured losses in 2018
were higher than the annual average of the previous 10 years. Sigma estimates also put the total economic losses from natural and manmade disasters in 2018 at $155bn. In 2017 this figure was $350bn.
Reinsurance and ILS news website
www.artemis.bm reports that according to FT analyses, for reinsurance
market contracts that were renewed,
the rate environment was flat or,
in some cases, even a little down.
However, according to Goldman
Sachs analysts, rates should see an increase in April and June/July renewals when Japan and US contracts come
up for renewal.
Japan and US renewals in mid-year can see price rise
January renewals, which are mainly focused on European contracts, did not
see an increase in prices perhaps because Europe did not experience many
catastrophic losses in 2018. Japan and the US were battered by catastrophic
events in 2018 hence, they should see a modest to decent price rise during
Mounting insured catastrophic losses and the continuing trend of a soft
market should also initiate a new thought from the industry on CAT modelling.
Goldman Sachs analysts quoted in www.reinsurance.ws said that leading
primary insurers are also likely to increase their reinsurance programmes in
2019. This should support pricing for reinsurers with diverse capabilities.
Retro covers can also bring in better prices for reinsurers
According to Goldman Sachs and Credit Suisse analysts, retro pricing should
be the driver of higher insurance cost in 2019. Elevated CAT losses during
the last two years should lead to improved pricing in property CAT lines,
especially in retro covers and also low excess of loss layers.
Reinsurers should pass on the higher retro prices to insurers. Credit Suisse
analysis says retro-protection purchases have increased by as much as 40%.
Marketplace Realities 2019 by Willis Towers Watson says that insurers are employing stricter underwriting guidelines to make better use of each market’s available capacity. At Lloyd’s, too, there continues to be a tightening, with an increased focus on book health rather than growth.
Lloyd’s pulling out capacity
Domestic markets and various Lloyd’s syndicates have undergone
a complete review of appetites for certain industry classes, with
both rate implications and reductions in coverage. This should
also help in rates to scale up.
There have also been reports that alternate capital has pulled back from the markets or is demanding better returns, thus pushing for better pricing of casualty lines by reinsurers.
ILS market also faces a comprehensive test
Willis Re, in its views for 2019 reinsurance renewals said that the insurance-linked securities (ILS) market faces a more comprehensive test in the
absence of a major pricing uptick following
significant loss erosion for some funds in both
2017 and 2018, and some funds are challenged in
attracting new investors.
While most of the 2018 losses have emanated from
well-known perils such as US hurricane, Japan wind,
flood and earthquake, the secondary peril of wildfire has
again generated substantial losses.
Long-term interest in ILS remains robust
According to the recent Willis Towers Watson Global ILS sur-
vey, the long-term interest in ILS, particularly from pension fund managers seeking diversification, remains robust.