Storms unlikely to hit retro prices

Hurricanes Irma and Harvey, which have caused high losses from wind and floods in North America, are unlikely to affect retrocession prices, Arno Junke, the CEO of Deutsche Rück, told Monte Carlo Today.

Deutsche Rück buys significant amounts of retrocession on behalf of German public insurers. In 2016, it retroceded €456 million ($546 million) in premiums.

It buys retro cover for nat cat and fire and uses a panel of reinsurers to diversify the exposure of its owners. The reinsurer’s portfolio structure includes 61 percent property and 21 percent liability, accident, motor as of 2016-end. Gross premiums written were €1.18 billion ($1.4 billion) in 2016.

“I would be surprised if prices for retrocession were to go through the roof as a result of the two hurricanes,” Junke said.

Insured losses for Hurricane Irma for the US and selected islands in the Caribbean will be between $20 billion and $65 billion, according to estimates by AIR Worldwide. Industry insured losses excluding the US National Flood Insurance Program (NFIP) from wind, flood, and storm surge caused by Harvey are expected to exceed $10 billion.

While losses from the hurricanes may be significant, Junke thinks the reaction within the re/insurance industry in calculating the potential losses was too quick and inappropriate.

The very significant flood losses from Harvey were not included in models, Junke said. This needs to be revisited and investigated more thoroughly, he noted.

Hurricane Harvey unloaded more than 120cm of rain east of Houston, the greatest amount ever recorded in the Lower 48 states from a single storm.

“I deem any model-based loss estimates being made as dubious,” Junke said.

Overall, Junke does not believe that the hurricane losses will have much of an effect on the current soft market in P&C. There continues to be overcapacity in the P&C market, and interest rates remain low, he noted.

In the past years, investors seeking higher returns in the low interest rate environment have been targeting the reinsurance sector, inflating capacity for cover and pressuring prices.

“The hurricanes or the earthquake in Mexico are not going to change much,” Junke said. “It will remain a buyer’s market,” he added.

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