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Market transition underway, but who knows if rate firming will persist: Chubb’s Greenberg

13th April 2018 - Author: Luke Gallin

After years of falling rates in the global property and casualty (P&C) industry, prices are starting to firm in some areas in response to 2017 catastrophe events, although it remains unclear just how long the positive rate momentum will last, according to Evan Greenberg, the Chairman and Chief Executive Officer (CEO) of global insurer and reinsurer, Chubb.

Evan GreenbergIn his 2017 annual letter to shareholders, Chubb’s Chairman and CEO explored numerous re/insurance and broader financial market trends, and on the back of a very challenging and costly year for insurance and reinsurance industry players, market conditions were expectedly noted.

An abundance of available capacity from both traditional and alternative sources has combined with benign loss activity and diminished investment returns in recent years, resulting in deteriorating balance sheet strength for numerous industry participants.

Add to this the impacts of third and fourth-quarter 2017 catastrophe events, and it’s not too surprising that re/insurers of all shapes and sizes reported weaker profits in 2017, although the events have driven some much-needed positive rate movement in the sector.

Greenberg noted the positive pricing trend in his letter to shareholders, stating that a combination of prolonged pricing inadequacy, steadily rising loss costs, a more challenging risk environment and the magnitude of underwriting losses from 2017 events, meant prices began to firm in some important classes of business by the end of last year.

“We observed that trend continue into January with some signs of momentum building, and so we now may be in a transition market where rates move in a meaningful and positive direction over time – although not in all classes and territories. That would be logical but it may be my mistake.

“We are seeing signs of a firming market. Pricing should and is beginning to move, although not in all classes and not in all countries. How far, how much and whether it will be enough to achieve adequacy – I don’t know. Rationally, it should move, but most companies don’t have our data, discipline or command and control,” said Greenberg.

While rates did improve at the key January 1st, 2018 renewals season, many reinsurers were disappointed with the level of rate hikes, which has been largely attributed to the growing and lasting presence of alternative reinsurance capital acting as a dampener to any post-event price surge.

With this in mind, and the fact that alternative capital remains very attracted to the space (actually increasing its presence in the market post-event when some in the industry thought many third-party investors might run for the hills when losses took place), it’s unclear how sustainable and meaningful rate improvements will be, something Greenberg alluded to a number of times in his letter to shareholders.

“As I said at the opening, we believe we’re now in a transition market where rates should continue to move in a positive direction throughout ’18, but who knows,” said Greenberg.

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