Greg Hendrick, President of insurer and reinsurer XL Catlin’s Property & Casualty (P&C) division, in a note on the re/insurance industry in light of third-quarter catastrophe events, has reiterated the company’s expectation of rate improvements at the upcoming renewals and anticipates change to evolve positively over time.
After expected catastrophe losses in the third-quarter of 2017 of around $100 billion, driven mainly by hurricanes Harvey, Irma, and Maria as well as the powerful Mexico earthquakes, numerous re/insurance sector experts and executives have discussed the potential for rate improvements at 1/1.
In a recent article, Hendrick echoes the views of XL Catlin Chief Executive Officer (CEO), Mike McGavick, that rate improvements will happen in the industry.
After years of declining rates leading to reduced profitability and thinner margins, the impact of alternative capital, and the fact shareholders are likely to expect higher returns as a result of recent events, XL Catlin believes change in the marketplace is warranted.
“The risk world is simply different today than it was prior to these events. The cost of carrying risk has changed. As a result, it is totally reasonable to expect rate to be more realistic and more sustainable.
“Change has to be appropriate to each company’s profile and each client’s risk. We will not adopt a one size fits all approach to our discussions, each client’s risk and trading relationship will be factored in to the renewal. But we are certain that change is warranted, and it will likely evolve positively over time,” said Hendrick.
Ultimately, retrocessionaires will be hit by recent catastrophe events, which is likely to reduce capital levels and increase rates, which Hendrick states will naturally start to impact reinsurers capital, and so on.
“This means an insurance buyer with no exposure to the recent catastrophes will likely see the effect of that pinch in capital further up the chain,” said Hendrick.
How much rates improve by and how broad any increases are at the upcoming renewals, and how sustainable any rate movements are remains to be seen, but it’s becoming increasingly clear that industry experts and executives expect some kind of a market turn after recent events.
