In many instances, pricing for catastrophe reinsurance business has not firmed as much as needed, but certain factors suggest a stronger market moving forward, according to Dominic Addesso, President and Chief Executive Officer (CEO) of Bermudian reinsurer, Everest Re.
Everest Re fell to a net loss of more than $380 million in the fourth-quarter of 2018, driven by high catastrophe losses. Despite the Q4 hit, the reinsurer recorded positive net income for the full-year 2018, helped by higher premiums and investment income.
In light of two consecutive years of high cat losses that significantly dented Everest Re’s performance, the reinsurer’s President and CEO underlined that the cat business remains a core part of the firm’s portfolio.
“However, pricing for risk in many circumstances has not firmed as much as required. On that business we take a pause and allocate our capital elsewhere. January did present some very good opportunities to get better risk-adjusted returns and some renewals were already adequately priced,” said Addesso, speaking during the firm’s Q4 and full-year 2018 earnings call.
He added that retrocessional, large programmes and loss-affected accounts’ pricing was strong at 1/1 2019, although the firm’s January 1st business for property cat reinsurance was down due to pricing on some lines.
However, moving forward, Addesso said that the reinsurer expects a stronger market as April and mid-year renewals are dominated by loss-impacted Japan and Florida business.
“The market has some repair to do in these areas as industry issues, particularly in Florida around LAE and AOB, are factors that have not been well considered in pricing.
“Couple that with what we see as desire for improved economics by third-party capital, and you have the recipe for positive renewals,” said Addesso.
John Doucette, President and CEO of Reinsurance, Everest Re, echoed Addesso’s point, underlining the ongoing evolution of both the traditional and alternative reinsurance market.
“We think that the entire market, the reinsurance, traditional and alternative market is evolving with some of the hiccups that have happened recently. And, we think that just puts the entire market in a better place for getting an appropriate return,” said Doucette.
Adding, “Given the improvement in our reinsurance portfolio, supported by our organisational resilience, underwriting acumen, relevance and diversified capital structure, we remain bullish on our future and we look forward to our success in 2019 and beyond.”
A number of global insurers and reinsurers have voiced an expectation of improved rates at the April and mid-year renewals, driven by the fact a lot of loss-impacted business is up for renewal. However, competition remains intense across the space and for the most part, a buyers market is evident.
With this in mind, it will be interesting to see exactly what rates do at the upcoming renewal seasons, and whether improvements are in line with expectations or, whether pricing once again disappoints.