Rates will harden in 2019—but fears of a false dawn may be real

Rates will harden in 2019—or at the very least remain stable. That is what our readers believe as they approach the January 1 renewals. But we are also mindful that the Christmas spirit may have made some a little too optimistic.

Rates will harden in 2019—or at least that is what almost 50 percent of our online readers believe. Some are not quite as certain but only a small percentage believe they will soften further in 2019.

That is according to Intelligent Insurer’s annual year-end survey of online readers designed to assess their views on the year just gone and their expectations and hopes for the next one. While the run up to the year-end renewals can be a frantic time for many in the industry, it also offers an insightful snapshot of their mindsets at this point in the year.

After small rises in 2018, seen as disappointing by many given the scale and continued loss creep from the 2017 catastrophes, it appears the optimism of many executives is unabated. They believe rates will climb—but many are also cautious.

“They must go up, it is simply not an option to continue enduring these losses without the market reacting,” said one respondent.

“I honestly believe most cedants understand that now—but much will also depend on how alternative capital reacts again this year.”

Others agreed: “The industry has endured too much pain now—and who knows what the cat losses could be in 2019,” another said. Laurent Montador, the deputy CEO of CCR Re, suggested several other factors could drive rate hikes including trapped capital, decreased capacity in the retro market and a backlash from disappointed ILS investors stung by the loss creep during 2018 from the cat events of 2017.

“They are learning that short tail could be far longer than they imagined (or had been told),” he said.

Another respondent suggested that some of the hits taken by alternative capacity in the past 12 months could make investors more cautious. “Alternative capital will take another hit in 2018 from the hurricanes, storms and wildfires and with interest rates increasing, and the CatCo investigation ongoing—this will all impact alt cap,” one said.

Many respondents also seemed to be less optimistic in their comments—perhaps those more inclined to imagine negative rates next year were more inclined to comment.

One respondent stressed just how attractive the industry remains to investors—despite the losses. “The insurance market represents a relatively safe haven against a background of Brexit, US/China trade wars and the general economic unease. So long as capacity remains at similar levels, the rates will be stable,” one said.

Another added: “There will be factors to support hardening but on the other hand, capital will be abundant in market.”

Joe Wee, head of engineering lines at Zurich Insurance (Singapore), agreed. “Signs of market weakness are creeping in, but capacity is still abundant. Interest rates remain unattractive, meaning there will always be fresh funds coming in to boost capital. M&A and Lloyd’s corrective action have partially slowed down the market erosion but fear of the false dawn remains very real,” he said.

Another anonymous respondent suggested that while rate increases may be achieved on some lines, it will likely be on a case-by-case basis. “Rate rises? Close, but no cigar on this level of loss,” they said.

Gib Brady, a consultant at Quantemplate, concluded: “The P&C market is already a well-capitalised industry and with the aforementioned alternative vehicles contributing to grow and leverage their (external) capitalisation, likely no material change in price.

“That written, given the increasingly burdensome growth in wildfires along the WUI (wildland–urban interface), coverage may be restricted and terms tightened.”