According to Bronek Masojada, the Chief Executive Officer (CEO) of global insurer and reinsurer Hiscox, a reduction in the supply of capital combined with greater demand for re/insurance protection is the reason pricing “will go up and needs to go up.”
Unsurprisingly, insurance and reinsurance industry talk is focused on companies’ Q3 and full-year 2017 results, as well as the upcoming January 1st, 2018 renewal season, following the high level of catastrophe losses, so far, in the second-half of this year.
The majority of firms have now reported their third-quarter results, including the financial impact of hurricanes Harvey, Irma and Maria, as well as the two powerful Mexico earthquakes, and other less costly and less severe catastrophe events that occurred in the period.
As a result of company announcements and overall industry loss estimates from modelling agencies, many in the industry are anticipating rate increases across the insurance and reinsurance sector at 1/1, with the highest increases occurring in U.S. property catastrophe reinsurance lines, but with increases largely expected across the board.
Hiscox, which recently lowered its combined loss estimate for hurricanes Harvey, Irma, and Maria, said previously that it sees rate increases of between 10% and 50%, and sometimes more, in loss-affected and loss-exposed U.S. property lines, and the company’s CEO reiterated its belief that pricing will go up, stressing that the industry won’t be able to shrug off the heavy cat losses.
Masojada disagrees with the notion that the industry will be able to shrug off the recent losses, and expects “only a trickle of alternative capital” to come into the marketplace. Warning that some insurance-linked securities (ILS) investors might not want to reload after experiencing losses, and combined with the potential for trapped collateral, he doesn’t believe “fund managers who have just lost a lot of money on these hurricanes will double down that quickly.”
Furthermore, on the traditional side Masojada expects that more companies would have suffered in 2017 when compared to the previous year, and in a market that’s already stressed and challenging, in terms of profitability and competition, participants will be looking for price increases and payback.
“All of these factors are driving price corrections, first among affected lines of business, such as large property insurance and catastrophe insurance, which will then have a ripple effect out to other lines, as the contraction in capital starts to bite. Many companies will want to buy more insurance, for instance flood cover, so it’s this combination of reduction in supply and an increase in demand which means that pricing will go up and needs to go up.
“Talk is cheap, words even cheaper. We will soon see the forces of supply and demand at work as all industry participants have to put their money on the table,” said Masojada.
Only time will tell just how much of an impact on pricing in the insurance and reinsurance industry recent catastrophe events have had. At the same time, it will be interesting to see how influential alternative reinsurance capital is at the upcoming renewals, after what’s being described as the sub-sector’s first real test.
