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H2 2018 losses by no means benign, but reinsurers able to absorb major event: Analysts

4th October 2018 - Author: Luke Gallin

Despite catastrophe and man made losses in the second-half of 2018 falling below the levels seen last year, so far, analysts at Peel Hunt have said that by no means is H2 2018 a benign loss period, with losses starting to have a meaningful P&L impact.

Shock absorbNotable natural catastrophe losses so far in the second-half of 2018 include hurricane Florence and Typhoon’s Jebi and Mangkhut, as well as wildfires in California among over adverse weather events.

According to Peel Hunt analysts, natural catastrophe losses for the third-quarter alone may have reached $16 billion, and with the Atlantic and Pacific hurricane basins expected to remain active until November, there’s clear potential for further losses in the final quarter of the year.

Analysts note these are still well below the reported $140 billion of industry losses reported in the second-half of last year, which was driven mostly by hurricane’s Harvey, Irma, and Maria. Losses are expected to be within catastrophe budgets for players but the fact the third-quarter hasn’t been a benign loss period, means there’s less room for companies to absorb a major loss event in the fourth-quarter.

Although, analysts at Peel Hunt say that the strong capitalisation of the reinsurance segment, which includes both traditional and increasingly alternative reinsurance capital, is robust enough to absorb any major loss event.

The strong capital base of the reinsurance industry and the willingness and ability of the alternative market to reload after 2017 events, resulted in a moderated and disappointing pricing response at the January renewals, a trend that persisted through 2018 with rates improvements continuing to fade.

With this in mind, and the fact alternative capital has once again expanded and claimed a larger slice of the overall pie, the expectation is that reinsurance pricing will decline at the upcoming January 2019 renewals, absent a truly unprecedented event that removes at least $200 billion of capacity, something that was highlighted recently in our Reinsurance Market Survey.

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