Posted in News on 15 Oct 2019

Reinsurance rate increases are expected to continue into the 2020 renewals due to ongoing disruption in the market and inadequate pricing levels, according to Fitch Ratings.

Fitch noted that reinsurance pricing turned decidedly positive at the mid-year 2019 renewals, following disappointing flat and generally stable rates at January. Momentum has largely been supported by a capacity squeeze in the retrocession market, driven by the costly catastrophe losses in 2017 and 2018. Losses were further exacerbated by the surprising amount of adverse loss development stemming from events like Hurricane Irma and Typhoon Jebi.

The April and June/July renewals also supported rate increases due to their focus on the Asia and Florida property catastrophe markets, respectively, each of which experienced considerable losses.

However, analysts at Fitch believe these rate increases will continue into 2020 due to the ongoing levels of disruption in the market. This is particularly the case in property retrocession, they noted, as alternative reinsurance providers have retrenched as they deal with significant trapped capital from the recent catastrophe losses.

Even with the costliest successive years on record of catastrophe losses in 2017 and 2018, overall pricing remains inadequate and well below recent risk-adjusted levels,” said Brian Schneider, Senior Director, Reinsurance at Fitch. While pricing generally continues to at least keep pace with loss cost inflation, the underlying loss cost trends are deteriorating, Fitch explained, with rising social inflation, a worsening tort environment and weakening liability reserves. This market fear should compel re/insurers to maintain underwriting discipline and manage risk appetite as they push for higher rates, analysts suggested.

Adam Bragg, Head of Latin American Property commented:

“The current market estimate for the insured loss from Hurricane Dorian is in the region of USD 3bn – USD 5bn: this will no doubt be a strong contributory factor to the continued hardening of the International Property market, both during the remainder of 2019 and into 2020. Feedback from the Baden Baden Conference in October will give us a clearer indication of how the Treaty market will be reacting over this period which will naturally have a direct effect on facultative rating levels. Insurers will also be closely monitoring any further potential windstorm events over the next few months, up to the official end of the hurricane season at 30th November. We would therefore advise our clients to bear the above in mind when discussing renewal terms with their local business producers…”

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This article references the following insight from Mercado Asegurador:  Click here to read more