Insurance and reinsurance industry Chief Executive Officers (CEOs) have expressed frustration at the reinsurance pricing environment and have highlighted a reliance on primary rate increases.
This is according to CEOs who spoke at the 2019 Bermuda Reinsurance Conference hosted by S&P Global Ratings last week. The event took place over November 5 – 6 in Hamilton, Bermuda, and included panel discussions and keynotes featuring a range of re/insurance industry executives.
A number of industry CEOs expressed their frustration at the lack of dramatic rate increases in the reinsurance sector, most notably in the catastrophe space, an area of the market that “just isn’t getting priced properly,” according to John Jenkins, CEO at SCOR Americas P&C Reinsurance.
He continued to stress that unlike in past cycles, where reinsurance had led on the pricing front, this time around the reinsurers have been relying on primary rate increases.
This point was echoed by President and CEO at Odyssey Group, Brian Young, who said: “The reinsurance pricing environment, in a word, has been frustrating. When it comes to cat I would have expected to see much more dramatic improvement. Commission levels also remain stubbornly high. There’s just too much capacity in the market.”
Rates in the reinsurance market have moved in a more positive manner in 2019 following consecutive heavy loss years, but the general sentiment from the conference and also from Q3 results has been that further improvement is required in a market that remains very competitive.
Addressing the audience in his keynote, President and CEO of AIG, Brian Duperreault said that while we live in odd times and “we’re not sure what’s true anymore,” the insurance industry’s response to global issues and uncertainty has been encouraging.
In light of global challenges and the prevailing pricing and economic trends, a conference polling question on return on equity (ROE) expectations revealed that 60% of respondents expect ROE for the reinsurance segment in 2019-2020 to be 7% – 9%, while around 24% said they expect ROE of under 7%.
“I think 7%-9% is probably on point. If cat loss levels continue to be elevated, then we’ll see less than 7%. With interest rates so low, it’s hard to see how returns can be significant,” said Young.
One of the factors that has served to mute the rate response to 2017 and 2018 catastrophe events has been the rise of alternative reinsurance capital. The third-party capital space reloaded in time for the Jan 2018 renewals which in turn mitigated the rate response, and while the entry of ILS slowed in Jan 2019 after another year of heavy losses, investors remain committed to the space and growth is expected to persist in spite of the loss experience.
SCOR’s Jenkins said that alternative capital is here to stay, noting that “we all need to learn how to work with it.”
“I think what you’ll see is an ongoing evolution as they become more professional,” he continued.
After the devastating and costly impact of typhoon Jebi in 2018, Japan was hit by typhoon Hagibis earlier this year. In light of the recent typhoon experience in Japan some traditional reinsurers might well see a move towards a hard market, which Kip Oberting, CEO at Sirius International, said should boost 2020 renewal prices.
“I would say (Japanese renewals) are up only 50%, that’d be very disappointing; they should double. Overall, we were not impressed with the price increases this year,” he said.
Young added, “I fully expect that we will see significant change next year in favor of reinsurers.”