Some firming but drastic increases unlikely

Certain segments of the market are showing some signs of firming and buyers are increasingly more interested in stability than further rate cuts, but it varies by line of business and even a big event is unlikely to result in a drastic change, John Andre, managing director at AM Best, told PCI Today.

“It varies by class of business and geography,” Andre said. “Two large reinsurance buyers have been quoted as saying that they are more interested in sustainability of markets and deal structures than absolute price.

“Given the capitalisation of the reinsurance market, better risk management and the growing participation of the capital markets, it is difficult to depict any kind of single event that would change the market.”

Anthony Diodato, managing director at AM Best, added that PCI will hold an element of déjà vu in terms of talking points as re/insurers grapple with overcapacity and soft rates.

“The main pressures points on the industry have not greatly changed,” he said. “The industry remains very competitive, with idle capacity waiting in the wings. Investment markets remain muted and third party capital continues to search for ownership opportunities.”

Diodato said that while losses from Hurricane Matthew will hit some fourth-quarter earnings, he anticipates no material impact on overall balance sheet strength.

Further, AM Best doesn’t anticipate any significant ratings actions related to Hurricane Matthew, as most rated insurance carriers have sufficient capital and appropriate reinsurance programs to absorb this event.

Diodato added that after many years without a significant southeastern US weather-related loss, a positive takeaway from the hurricane might be a renewed focus on aggregation controls in that region.

“Hurricane Nicole inflicted a direct blow on Bermuda. Since the domestic primary insurers in Bermuda are heavily reinsured with manageable retentions, it is anticipated that the brunt of the storm’s financial impact will once again fall on reinsurers,” Diodato added.

“Despite the impact from Matthew and Nicole, these events don’t represent a material financial impact for reinsurers and should be easily absorbed.”

Andre added that he expects the potential of big data to be a big theme at PCI. “Since supply outweighs demand and interest rates continue to flounder, re/insurers must sharpen their tools in order to remain relevant,” he said.

“Many have started work on harnessing big data in various ways in order to gain an underwriting edge on their competition. Tried and true underwriting techniques are being supplemented with detail garnered from big data, including social media information, photo imagery from drones and granular detail on consumer buying habits.”