Hard market could be short-lived as new capacity enters market
While reinsurance rates have hardened in many lines of business, this could be short-lived – something that may have long-term consequences for the structure of the reinsurance market, according to Aon Benfield’s latest Reinsurance Market Outlook report, which analyses the trends observed at the January 1, 2018, reinsurance renewals.
The report notes that while losses were heavy in 2017, large amounts of new capital have entered the market, which could dampen pricing in the medium to long term. But the report also highlighted the size of the protection gap, which does represent an opportunity for the industry.
Based on current Impact Forecasting estimates, natural catastrophe events caused economic losses of around $320 billion globally in 2017. Insured losses, covered in both the private market and by government-sponsored programmes, are estimated at $128 billion, making it the third most costly year behind 2011 and 2005.
The insurance recovery ratio of 40 percent once again highlights the protection gap evident in even the most developed markets, the report noted. As in 2005, the main driver of losses in 2017 was three Atlantic hurricanes in the third quarter – Harvey, Irma and Maria – which are estimated to have caused economic losses of $200 billion and insured losses of $80 billion.
Record-breaking wildfires in California rounded-out the year. The ultimate size and distribution of claims from these recent events remains uncertain, but it is already apparent that they are manageable and well-spread. The continuity and responsiveness demonstrated by the industry has clearly benefitted policyholders, the report notes.
“The scale of the reinsured portion of these losses is difficult to determine, partly because most providers of reinsurance capacity also write insurance business. However, it is clear that traditional reinsurers were well-capitalized going into these events and that, relative to 2005, more risk was being retained by primary insurers and more catastrophe exposure had been laid-off into the capital markets,” the report notes.
As a result, the losses in 2017 have been absorbed without compromising the availability of reinsurance capacity. The report stresses that recent events provide the first real test of an alternative capital sector that supplied almost $90 billion of capacity in 2017, up from only $10 billion in 2005. Significant funds backing fully collateralized reinsurance and retrocession contracts have been lost or trapped, but investors have responded by showing strong appetite for an asset class that is now viewed as being relatively more attractive.
“The sector has therefore proved its worth and come of age as a committed source of reinsurance capacity,” Aon Benfield said. “Against this backdrop, the January renewals were late, but orderly, with strong competition evident in many sectors. Reinsurance pricing has moved up in lines and territories most affected by recent losses, but we expect this trend to be relatively short-lived, given the amount of new capital entering the sector. This may have long-term consequences for the structure of the reinsurance market.”
Join us at Intelligent Automation in Insurance - London 2018. Book by Jan 31st and you could save £400.
More of today's news
Liberty names new head of European claims
US tax changes prompts Assurant to tweak Warranty Group deal
Already registered?
Login to your account
If you don't have a login or your access has expired, you will need to purchase a subscription to gain access to this article, including all our online content.
For more information on individual annual subscriptions for full paid access and corporate subscription options please contact us.
To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.
For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk
Editor's picks
Editor's picks
More articles
Copyright © intelligentinsurer.com 2024 | Headless Content Management with Blaze