The dynamics of the global insurance and reinsurance market, combined with the devastating impacts of catastrophe events in the third-quarter, suggests rate improvements are on the horizon, according to XL Group executives Mike McGavick, and Greg Hendrick.
Insurer and reinsurer XL Group announced a net operating loss of more than $1 billion for the third-quarter of 2017, driven by previously announced catastrophe losses of almost $1.5 billion, which contributed to a P&C combined ratio of 146.9% for the quarter.
On the back of what’s expected to be the costliest quarter on record for global catastrophe losses, driven by hurricanes Harvey, Irma and Maria, as well as two powerful Mexico earthquakes, many re/insurers’ Q3 results were always going to be impacted by higher cat losses.
Speaking during XL Group’s Q3 earnings call, Director and Chief Executive Officer (CEO), Mike McGavick, identified the 2017 Atlantic hurricane season as “dramatic and different,” with truly “astonishing” attributes.
Combined with broader, changing insurance and reinsurance market conditions, catastrophe events in the third-quarter are expected to result in improved rates.
“I think it is hard to compare exactly where we are now to prior events and prior cycles, too much has changed. The dampening effect of alternative capital is just one example. But we know a few things also to be true. One, across the board, these events took place at a time when the global insurance and reinsurance market has been underpriced for some time.
“Two, the risk world is simply different today than it was prior to these events. The cost of carrying risk has changed, and I would expect investor return expectations to change. As a result, it is totally reasonable to expect rates to be more realistic and more sustainable,” said McGavick.
McGavick continued to explain that XL Group sees logical and now demonstrable evidence that a turn is happening in the marketplace, but stressed that market turns don’t happen “suddenly and fully in the first instance.”
XL Group expects short tail lines pricing to increase by 10% or more, and revealed during its Q3 earnings call that it starts to see the P&C market hardening from its softened state, following years of rate declines.
As the softened reinsurance market landscape has persisted at a time when alternative capital has really expanded and cemented its place within the global risk transfer industry, market commentary has suggested a flattening of the market cycle, and this is something that XL Group’s Executive Vice President (EVP) and President of Property & Casualty, Greg Hendrick, highlighted during the earnings call.
“One difference though is that I don’t think we’re going to have those truly, truly hard market spikes that we had before. Alternative capital has come in to help us be a little more measured in our reaction to things as we learn. And also, as we started to see, prices were levelling off before we had these events,” said Hendrick.
“As we look at the global re/insurance markets today, with a view that we will see new levels of appropriate sustainable pricing, we believe we are well positioned by virtue of our diverse portfolio, global relevance and disciplined underwriting,” said McGavick.
