The re/insurance industry has broadly enjoyed a hardening rate environment in 2019, but a return to price adequacy will require some fundamental changes in terms of the way companies model and respond to catastrophe losses.
This is according to Arthur Wightman, PwC Bermuda Territory and Insurance Leader, who spoke to Reinsurance News about the state of the re/insurance market in a recent interview.
Wightman noted that positive movements in pricing and interest rates has given rise to optimism in the industry, but believes this sentiment will ultimately be short-lived.
“I think what’s slightly concerning is when you look at some of the fundamentals around loss experience and relative price increases, you’re really not seeing tremendous price adequacy at the moment,” he told Reinsurance News.
“You’re seeing better pricing than you might have seen a year ago, but the question becomes: Is it really sufficient to mitigate long-term risks that the carriers are picking up?”
Over the last several months, Wightman does not think that models utilised by re/insurers have generated the results needed.
This, he says, is evident from the unprecedented levels of loss creep that have developed on catastrophe events such as Hurricanes Harvey, Irma, and Maria, as well as Typhoon Jebi, amongst others.
The deterioration only shows how far the industry has to go in terms of satisfactorily being able to model its exposure and generate an adequate price, Wightman argued.
Reinsurers can address these issues by adapting their approach to modelling and pricing, but it is also the responsibility of the carriers to educate customers about the exposures that are evident, he added.
“Many customers in those cases have been getting very good deals on the pricing, because there’s still pretty low prices while exposures have gone through the roof,” Wightman explained.
“So there’s got to be some systemic changes in the area of modelling, and there also need to be some market-specific changes in terms of being able to get decent and early cedant reporting on losses.”
Wightman, however, acknowledged that enacting these kinds of changes will be challenging given the multitude of other market forces currently acting on re/insurers.
“The various organisations are trying to find their feet strategically in an environment where everybody’s trying to eat each other’s lunch, as it were,” he said.
“So the brokers are trying to do a lot more of what the carriers might have been doing in terms of servicing their clients. And the carriers are trying to do a lot more of what the brokers are trying to do. And a big part of that is shareholder pressure to drive better returns at the organisations.”
