Due to the aggregation of losses from hurricanes Harvey, Irma, and Maria (HIM) the retro-reinsurance market is expected to cover much of the HIM losses, significantly impacting reinsurers earnings but falling short of a capital event, according to A.M. Best.
Property/Casualty re/insurers with the biggest HIM reported net losses are; Lloyd’s of London with $4,800 million reported net losses, Swiss Re $3,600 million including Mexican earthquakes, Munich Re $3,200 million, and Berkshire Hathaway $3,000 million including Mexican earthquakes.
The rating agency said the full impact of Q3 losses can be measured now that firms have reported Q3 earnings; “based on initial reported losses, early indications are that total industry losses from the three hurricanes may be upwards of $90 billion.
“Primary insurers, traditional reinsurance, collateralized reinsurance, and insurance-linked securities (ILS) will all share the losses of these events.”
The retro market is expected to pick up a large portion of the Q3 loss tab; many third-party capital investors will have to pay out major losses for the first time after re/insurers in recent years have increasingly boosted capacity with alternative capital.
“Property rates in loss-affected areas likely will see the largest increases, but time will tell if the 2017 hurricanes will have a meaningful impact on the entirety of the reinsurance market.
“Although many in the reinsurance and retro-reinsurance markets have been pushing for large rate increases as a result of the catastrophe losses, third-party capital may act as a moderating influence on rate hikes.
“Although we expect reinsurance rates to increase, specifically for loss affected areas, seeing how this has played out in January renewals will be interesting, with ample capacity from both traditional reinsurers and alternative capital providers most likely suppressing price increases more than either party would like,” said A.M. Best.
It’s too early to tell which catastrophe bonds will be paid out as a result of the record-setting HIM insured losses in Q3, however, the rating agency believes “those with annual aggregate protection that cover all U.S.-named storms and industry loss warranties are the most likely to have been triggered.”
The fourth quarter saw an influx of new capital into the retro-reinsurance market, some from multiple catastrophe bond transactions covering U.S.-named storms, showing third-party investors at all levels remain keen to take advantage of the opportunities for bigger market demand.
For reinsurers and insurers hoping for significant rate increases, this will act as a damper on a hardening of the market, however, it shows the industry is robust and thriving with a surplus of capacity and increasing competition as investors continue to innovate and seek out diversification opportunities provided by the re/insurance space.