Global reinsurer Everest Re is optimistic about the pricing outlook for reinsurance renewals over 2019, anticipating rate increases across property catastrophe, specialty and casualty lines, according to analysts at Goldman Sachs.
After a series of meetings with Everest Re’s management, including its CEO, CFO and presidents of the Reinsurance and Insurance divisions, Goldman Sachs reported that the company expects property catastrophe pricing to be up at 1/1 renewals and to continue into the Japan 4/1 and Florida 6/1 renewals.
January renewals are late this year, but Everest Re’s management felt this reflects an insurance market that is still struggling to determine needs, rather than the last minute rush of capital that impacted pricing last year.
The re/insurer’s heads also noted that more alternative capital is locked up today compared to prior years, while alternative capital redemption activity has increased, making for a tougher third-party reinvestment period in January renewals, and third-party capital expectations are for rate increases.
Goldman Sachs reported that the company expects to be more discriminating about when and where it deploys capital to property catastrophe throughout 2019, particularly with regard to the retro market, based on more constructive rate expectations.
Everest Re also estimates that roughly $2 billion of Lloyd’s capacity has exited the market since the beginning of 2017, while another $2 billion has been underwritten, yet this not led to any improvements in pricing.
Goldman Sachs’ analysts noted that, in the context of a $1.4 trillion global insurance market and considering that overall market capacity has actually increased over that time period, the pricing impact should be limited.
The meetings revealed that most of Everest Re’s reinsurance growth has stemmed from mortgage reinsurance, where pricing and margins are attractive, as well as structured/credit, where the market is hard, and casualty pro-rata, which is benefiting from improved underlying pricing and better ceding commission rates.
In terms of Q4 catastrophe losses, Everest Re’s management believes that it is too early to offer a loss estimate for the California wildfires and Hurricane Michael, or to determine the extent of their impact on pricing.
However, the re/insurer believes that assignment of benefits (AOB) claims from Michael will be far more contained than for 2017’s Irma, and is confident in its current loss picks for Irma despite continued industry loss creep.
Goldman Sachs estimates that, based on last year’s $13 billion California wildfire losses, of which Everest had a $285 million share, the company’s wildfire reinsurance losses for 2018 could reach up to $400 million.
In response to heavy catastrophe losses in recent years, Everest Re has begun to shift away from property cat business, with an annual cat load of 9% compared to 12% a few years ago, which Goldman Sachs believes should lead to excess capital generation.
