The recent, devastating impacts of third-quarter catastrophe events and the California wildfires serve as a wake up call to the insurance and reinsurance industry, with 2018 expected to be a very interesting year for the marketplace, according to Swiss Re’s Chief Economist, Kurt Karl.
In an interview with Reinsurance News, Karl discussed the potential for rate increases at the upcoming January 1st, 2018 renewals in light of an expected insurance industry catastrophe loss bill of around $100 billion from third-quarter losses alone.
Naturally, industry commentary has focused on the potential for rate improvements at 1/1 and how sustainable any movements might be after years of rate declines, driven partly by high competition from both traditional and alternative reinsurance capital providers, amongst other headwinds.
Commentary from industry experts and executives surrounding price increases has varied, with some expecting larger price hikes than others, while some industry observers and analysts have questioned if any increases will be both meaningful and sustainable.
“There is a possibility that rates don’t go up enough, but the difference now than with previous cycles is that pricing has gone down so far. It’s not that any of the losses are so gigantic, but coupled with the extremely low pricing environment, it’s very obvious that an adjustment is needed.
“This is a wake up call to the industry,” said Karl.
Karl also underlined the impact to alternative reinsurance capital from Q3 cat events, a sub-sector that now serves as an important and influential element of the global insurance and reinsurance landscape.
He explained that Swiss Re has always viewed alternative capital, or the insurance-linked securities (ILS) space as being fairly sophisticated and resilient, adding that 2017 was likely to be the first real test for the sector.
For the insurance and reinsurance industry, “it’s a very interesting year ahead for 2018,” said Karl, underlining the increased severity and frequency of a range of perils in numerous parts of the world as a result of the changing climate and evolving risk landscape, which creates both challenges and opportunities.
It will be interesting to see what 2018 holds for the industry, and if expected price increases come to fruition and just how sustainable any movements are for players across the sector.