Reinsurers look set to shoulder another quarter of “extraordinary” natural catastrophe losses following increases in industry estimates for the California wildfires and hurricane Michael, leading to hardening rates in 2019, according to analysts at Barclays.
They expect a 1-3% increase for large players and believe this year’s industry losses may reach between $75 billion to $80 billion, almost two times lower than the 2017 record high of $144 billion but above the 20 year average of $57 billion.
Barclays adds that, while the largest players such as Munich Re and Swiss Re appear likely to eat through nat cat budgets for 4Q18 and FY18 it sees no risk to capital return in 2018, while large losses and constrained alternative capital capacity points to likely continued rate rises in 2019.
Losses were not limited to U.S property and catastrophe lines, with substantial claims in Asia cat or in specialty lines.
Together with potential shortage of alternative capital due to poor 2018 returns detailed in the Bank’s latest Bermuda trip notes, it believes reinsurers should expect a positive price response in 2019, with rate improvement at a similar scale to 2018 at 1-5%.
This marks a visible improvement against the “flat-to-down” comments heard from industry executives at its Monte Carlo meetings in September.
Furthermore, on Barclay’s estimates based on the scale of the wildfires, reinsurers should brace for an approximately 25% larger loss, notwithstanding higher retention.
Analysts expect Munich Re and Swiss Re to have the largest exposure at up to €630 million for Munich Re and $525m for Swiss Re, assuming a market share similar to last year’s events.
Adding the impact from hurricane Michael (and €150 million from Typhoon Trami for Munich Re not included in 3Q18 large losses), Barclays believes the largest reinsurers run the risk of running through annual large loss budgets.
Hannover Re may exceed its 4Q18 budget, but favourable experience in 9M18 has left it with €260 million of unused cat budget which will likely leave some reserves untouched for the year, which the company is likely to release in 4Q18.