Global financial services ratings agency, A.M. Best, expects an acceleration in rate increases for the key January 1st and April 1st, 2020 reinsurance renewals, but warns of another lacklustre performance for the reinsurance sector in 2019 after a series of major catastrophe events.
After consecutive heavy loss years, insurers, reinsurers and insurance-linked securities (ILS) players have been hit again in 2019 with a series of major catastrophe events, most notably Hurricane Dorian in the Caribbean and the U.S., and Typhoons Faxai and Hagibis in Japan.
A.M. Best expects these three events to have a meaningful impact on the profitability of the reinsurance sector in the coming months, as well as pricing conditions for both reinsurers and retro participants.
The combined losses arising from Faxai and Hagibis could be as much as the level recorded from Jebi and Trami in 2018, says A.M. Best, which would result in “another lacklustre performance for the reinsurance industry in 2019.”
However, following the events of 2017 and 2018, two of the costliest cat loss years on record for the global re/insurance industry, another year of major cat losses this year might well drive a continuation of the positive rate momentum experienced in the reinsurance market throughout 2019.
“AM Best’s expectation is for an acceleration in rate increases for the January 1 and, especially, for the April 1, 2020, renewal seasons, with Japan-exposed reinsurers demanding higher returns for underwriting these exposures.
“Additionally, most players may finally acknowledge a fundamental change in the frequency of these events, prompting them to demand higher rates to mitigate potentially larger losses in the future,” says the ratings agency, in a recent Global Reinsurance industry note.
Three consecutive years of major catastrophe losses, albeit that 2019’s losses are expected to be far lower than those recorded in 2017 and 2018, combined with a reduced ability to call on reserves and also a prolonged low interest rate environment, suggests a “continued erosion of earnings for players in the market,” says A.M. Best.
