Reinsurers set for further earnings erosion in 2019 – AM Best

Reinsurers are likely to see further erosion in 2019, following another year of major catastrophe losses, according to ratings agency AM Best.

However, the agency added that the spate of catastrophe events may prolong the positive momentum that reinsurance pricing has experienced throughout 2019.

In its report, "2019 CATs Expected to Once Again Dent Reinsurance Earnings," AM Best states that recent events such as Hurricane Dorian in the Caribbean and United States and typhoons Faxai and Hagibis in Japan likely will have a meaningful impact on the profitability of and pricing conditions for global reinsurers and retrocession players.

The loss creep from last year's Typhoon Jebi into 2019 has been a learning curve for many market participants, and as a result, some reinsurers to date have been conservative in providing loss estimates, says AM Best.

Some reinsurers have begun to cautiously estimate their losses, but the general consensus is that Dorian will cost an industry loss at the high end of range of $6 billion to $9 billion. The majority of these losses, some 70%, are estimated to come from the hurricane’s devastation to the Bahamas, with the remainder relating to US exposures.

Last year, reinsurers seem to have underestimated the hurdles involved in notifying, assessing and reporting this sort of risk, which led to them having to deal with material adverse reserve developments several months after the event. Reinsurers are therefore being very conservative in providing estimates for the 2019 Japanese typhoons, said AM Best.

The agency notes that the combined losses for Faxai and Hagibis could be as high as those recorded for Jebi and Trami in 2018, leading to another lacklustre performance for the reinsurance industry in 2019.

On the upside, AM Best said the third successive year of major catastrophe losses may prolong the positive momentum that reinsurance pricing has experienced throughout 2019. AM Best’s expectation is for an acceleration of rate increases for the January 1, and especially April 1, renewal seasons. More players may finally acknowledge a fundamental change in the frequency of these events, and demand higher pricing to mitigate potentially bigger losses in the future, said AM Best.

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