Evan Greenberg, the Chairman and Chief Executive Officer (CEO) of global re/insurer Chubb, believes insurance and reinsurance markets are at the start of a firming price environment, after years of a softened market state.
Chubb announced third-quarter 2017 after-tax catastrophe losses of $1.525 billion, which drove the firm to a net loss of $70 million and an operating loss of $60 million for the period.
Rates across the industry have been under pressure for some time, with benign loss years combining with ample capacity and intense competition, from both traditional and alternative sources, to dampen the profitability of players of all shapes and sizes.
But following three major hurricanes in the third-quarter and two powerful earthquakes in Mexico, the industry is hoping for rate increases at the upcoming January 1st, 2018 renewals season, and Greenberg feels the start of a shift from the soft market landscape is starting.
“I believe we are at the beginning of a firming price environment, driven by years of soft pricing that has resulted in inadequate rates in many classes. The magnitude of this year’s CAT losses, which on a worldwide aggregate basis was between a one-in-five and one-in-10 year industry event, simply adds to the pressure to return to pricing that produces an adequate risk-adjusted return,” said Greenberg, as part of a statement on the company’s Q3 performance.
Speaking to the Financial Times, Greenberg said that only time will tell how broad and extensive the firming of pricing will be, adding that the timing will differ by geography and business line, but that firming is likely to occur outside of just the catastrophe re/insurance segment.
Since risk modellers and insurers and reinsurers have announced industry-wide and company-specific loss estimates for the events that took place in the third-quarter, industry executives, experts and observers have questioned what the impact will be on rates at 1/1.
While the majority expect rates to improve, numerous factors, including the reported abundance of capital sat on the sidelines waiting to enter, the excess capital already in the market, and the ease and speed at which both traditional and alternative capital can now enter the marketplace, have been highlighted as factors that could limit any price surge at renewals.
But as Greenberg notes, only time will tell exactly what impact hurricanes Harvey, Irma, and Maria, and the Mexico earthquakes have had on pricing, and the broader re/insurance market environment in 2018 and beyond.
Analysts at KBW noted that installing a higher price floor will take discipline amongst both insurers and reinsurers, noting that “relatively few” are expected to be as disciplined as Chubb.