Harvey may stabilize pricing but no hard market predicted

Losses resulting from Hurricane Harvey and the subsequent flooding following the event could help stabilize re/insurance rates but will unlikely be enough to trigger increases.

That seems to be the consensus from analysts and rating agencies following the event. Morgan Stanley suggested that, while it is too early to gauge ultimate losses, the industry's balance sheet is strong, with plenty of excess capital and an influx of alternative capital.

“We think Harvey could help stabilize global reinsurance pricing, but do not expect a major turn in pricing to follow. We remind investors that carrier stocks tend to underperform immediately following a major cat (given loss uncertainty), but outperform the overall market 3-6 months after as loss estimates come in focus and rates stabilize. Insurance brokers, on the other hand, tend to outperform immediately following an event (given the expected rise in rates with no underwriting risk),” the bank said in a research note.

S&P Global Ratings has suggested that insurers will bear the brunt more than reinsurers, but the latter will not be unaffected. In 2017, among other reinsurance coverages, the reinsurance market provided $1 billion of protection to the NFIP and $2.1 billion to TWIA, which attaches at $2.8 billion (reinsurers cover losses between $2.8 billion and $4.9 billion).

But it too does not anticipate a big change in rates as a result. “We don't expect the potential losses from Harvey to consume reinsurers' catastrophe budget for the year, especially considering the below-average catastrophe losses in the first half. Pre Harvey, we expected reinsurance pricing to decrease 0 percent to 5 percent into 2018. We expect any impact on pricing because of Harvey to be limited to affected regions and policies,” the rating agency said.

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