While property catastrophe lines of reinsurance would likely prove resilient to a second consecutive year of heavy catastrophe losses, casualty and specialty lines might feel the impact more severely, according to Keith Harrison, Chief Executive Officer (CEO) for UK & Europe at JLT Re.
Both traditional reinsurers and alternative capital markets responded well to the roughly $140 billion of total insured catastrophe losses incurred over 2017, largely due to the abundance of capital in the market and the rapid reload of alternative capital, although the pricing environment did not harden to the extent it had done following previous heavy catastrophe years.
Speaking in JLT Re’s Summer 2018 Risk Perspective report, Harrison claimed that the property market would likely respond very similarly to another $140 billion of cat losses in 2018, albeit with slightly more pronounced firming in pricing.
“But it might not be quite the same story for other reinsurance lines,” Harrison explained, “especially casualty and some specialty classes now that carriers can no longer rely on high-margin property business to subsidise pricing in these areas.“
He observed that firming price environments and more cautious risk appetites are already evident in casualty lines such as U.S workers’ compensation per person excess of loss and commercial auto.
Many lines have also had to contend with challenging loss ratios due to years of soft insurance and reinsurance pricing, as well as a rise in claims severity and dwindling reserve redundancies.
“The perceived need for higher casualty pricing, and reinsurers’ willingness to push for it, might just be the more profound change if 2018 turns out to be another heavy catastrophe year,” said Harrison.
“After all, there is no new casualty ILS capital to dampen casualty reinsurance price increases, just traditional market competition that could be somewhat stressed.”
He continued: “Thoughts from us in London then are not of foretold hardening, but more of ‘what if’ readiness as those who fail to anticipate, who have no contingency plan, might find they have fallen into a false sense of security that comes from a muted and lulled market response to 2017’s cat losses.”