CreditSights anticipates a hardening of the rate environment going into the January 2018 renewals in the natural catastrophe affected lines of business, but not within the overall reinsurance market owing to excess capacity.
Analysts suggest that price changes will follow patterns seen after 2005 when reinsurance capital was significantly depleted by hurricanes Wilma, Katrina and Rita.
While re/insurers have some improved earnings on loss-affected lines to look forward to, these aren’t forecast to be similar to levels following previous heavy catastrophe loss years due to higher pricing pressures from the abundance of capital that’s flooded the market in recent years.
Alternative capital was just beginning to enter the market in 2006, however, 11 years on its claimed a permanent stake within reinsurance capital now amounting to $89 billion compared to $516 billion of reinsurance capital in 1H17, according to CreditSights.
“Even if $45 billion of traditional/alternative capital is eroded, as suggested by certain market participants, capital levels will still be well above 2006 levels,” analysts explained.
CreditSights quotes broker Marsh & McLennan (MMC) who said “too much is unknown about how losses will develop, how capital will react, or how client buying patterns will change.”
XL management said it’s already seeing premium rate increases in the “double digit range” with higher increases for loss-impacted accounts.
In longer-tail lines, XL believes recent rate declines have come to an end.
On the other hand, MMC had a different assessment of the future of the premium rate environment.
Despite any market dislocation caused by recent events, excess capital within the reinsurance industry combined with a substantial volume of third-party capital sat on the sidelines waiting to take advantage of any pricing movements mean price surges are expected to be dampened.
