Panelists at the 2017 Bermuda Reinsurance Conference said that with Hurricanes Harvey, Irma, and Maria as well as the Mexico City earthquake creating what increasingly appears to be a capital event for the global reinsurance industry – pricing may have finally reached a turning point.
“Either way, the industry may be evolving toward one with fewer radical price swings,” said Kevin O’Donnell, president and chief executive officer of RenaissanceRe; “I think we are moving to a more mature industry, and there will continue to be a secular shift toward efficiency and more stable margins. What we need to get to is some oscillation around a price that is the right price for the risk we are assuming.”
S&P Global Ratings said any rating actions ensuing from firms’ significant catastrophe-related losses will depend on a reinsurer’s capital buffer for the rating, losses relative to expectations, as well as to peers’ and the overall market, its earnings power in the next couple of years, and management’s plan to replenish capital.
XL Group’s McGavick added; “this kind of violent cycle is going to go away. We’re going to start to be more precise over time, or else the market makes no sense. It can’t play the way it did – it just won’t.”
Marc Grandisson, president and chief operating officer at Arch Capital, commented that many buyers of reinsurance have resigned themselves to the fact that there will be price increases, and industry experts agreed that there will likely be some tightening of terms and conditions as well.
“There’s a recognition from the community of buyers that there needs to be some correction,” said Grandisson, “when you talk behind closed doors with the most senior brokers, they understand that things need to change.”
Grandisson added that even though the expansion of coverage is not the culprit for losses, firms can cut back on exposures.
“I think there will be a combination of applying appropriate terms and conditions and appropriate pricing,” said RenaissanceRe’s O’Donnell; “either way, margins are higher or lower because of either pricing or terms and conditions.”