Reinsurance News

Global reinsurers target U.S. property cat rate rises

24th October 2017 - Author: Steve Evans

The largest global reinsurance players are set to target any U.S. property reinsurance rate increases following the impacts of recent hurricanes and catastrophe losses on the sector.

In recent years, the big four European reinsurers and their global counterparts have been seen to pull-back from U.S. property catastrophe exposed lines of reinsurance business, to a degree, as the competition ramped up and pricing plummeted.

But now, with most analysts forecasting at least some increase in reinsurance rates across the United States, it appears that some of these global players are set to return to the U.S. market more meaningfully and are looking to underwrite larger portfolios at the next rounds of reinsurance renewals.

As pricing came down in property catastrophe lines of reinsurance some of the major reinsurers withdrew much of their support for this area of the market, focusing instead on diversifying risks, or their commercial insurance arms for capacity deployment.

But with forecasters suggesting that reinsurance pricing could rise broadly by up to 5% at the next renewal season, with rate rises of as much as 20% to 40% expected on the particularly loss affected lines and regions, such as retrocession or Florida, Texas and Caribbean catastrophe risks, some of the biggest reinsurers in the world are set to be tempted back.

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Of the large reinsurance firms with primary commercial and industrial arms, we understand that these firms also see opportunities to increase rates for some of their clients, particularly for loss affected accounts.

This is also seen as a way to ensure reinsurance pricing holds up, by applying pressure from the bottom of the value-chain upwards.

The need for higher margins and returns at major reinsurance firms is clear, as reinsurer RoE has dropped to levels viewed as unsustainable over the longer-term without dramatic reductions in expenses.

This affects the property catastrophe specialists, such as the Bermudian reinsurers, the most and these companies are likely to compete hard to win any business that comes with a higher margin at the upcoming January renewals.

With a renewed focus on the United States from the world’s largest reinsurance firms and likely high competition from catastrophe specialists, as well as from third-party capital providers such as ILS funds, it appears that the January renewals and beyond could be characterised by very high levels of competition.

Sources have told us that some traditional players are looking to return to the retrocession market that have not underwritten there for a number of years now, which will ramp up competition further.

After an industry-wide loss somewhere in the region of $100 billion, the major reinsurers will all be looking to benefit from price increases and at the same time keen to make sure they maximise the opportunity to boost their underwriting portfolio returns with them.

With some excess capital having been drained from the reinsurance market through the recent losses, it now looks like this could be replaced in spades if the biggest reinsurers all look to take advantage of any rate increases.

Could the rush to capitalise on rate rises in U.S. property and catastrophe exposed reinsurance business put a dampener on price increase?

It’s certainly possible, depending on how aggressively major players look to come back into markets such as Florida at future renewals.

With the alternative markets also looking to expand, if new capital can be successfully raised in time for January, there is a very real possibility that rate increases are short-lived.

By the time we get to the mid-year 2018 renewals, where Florida and U.S. property cat underwriting opportunities are most available, and if capital is abundant as it could be, reinsurance pricing may not be much higher than where it sits today.

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