Reinsurance News

Unprecedented or unexpected event(s) needed to turn reinsurance pricing: Survey

21st September 2018 - Author: Luke Gallin

Just over 40% of respondents to the Reinsurance News and Artemis Reinsurance Market Survey believe that at least a $200 billion+ event or series of events is needed to meaningfully turn market pricing.

Reinsurance News and insurance-linked securities (ILS) focused sister publication, Artemis, recently launched a survey designed to take the temperature of the global reinsurance market.

The survey, which includes verifiable responses from participants throughout the value chain at various positions, revealed a number of trends across the sector, including what market players think it might take to meaningfully turn reinsurance pricing.

The global insurance and reinsurance industry experienced one of its costliest catastrophe loss years on record in 2017, at a reported $140 billion. Many in the market had hoped that losses of this magnitude would drive a positive pricing trend at the January 2018 renewals and beyond, following years of falling rates in a prolonged softened market environment.

But while rates did improve at 1/1, mostly for loss-affected lines and regions, the influence of alternative reinsurance capital meant that they were muted when compared with previous post-event price hikes. Rates have since continued to fade throughout 2018, leading many to note disappointing April and mid-year renewals and a flatter underwriting cycle moving forward.

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With this in mind, we thought it would be interesting to see what people in the global reinsurance sector think it might take to meaningfully turn pricing, or whether the industry feels that the cycle is dead and the pronounced peaks and troughs of previous market cycles are simply a thing of the past.

According to the survey results, approximately 16% of respondents believe a $200 billion+ event or series of events is needed to see a significant pricing response, while approximately 24% believe that a $250 billion+ event or series of events is required.

Just 12.5% of respondents feel that a $150 billion+ event or series of events is needed to turn the market, which, is perhaps somewhat higher than expected given the very muted price reaction to $140 billion of losses in 2017.

In light of the pricing response throughout 2018, some market experts and executives have said that it will take an unexpected or black swan event to meaningfully turn pricing. The survey shows that roughly 13% of respondents feel an unmodelled event above $100 billion would be sufficient to turn the market, while just under 17% said that it would take an unmodelled event above $150 billion.

Market loss survey

Only 6% of survey respondents feel a $50 billion or greater liability catastrophe is required to drive a meaningful pricing turn across the reinsurance market, which is fewer than the almost 8% that believe nothing will turn the market, as the cycle is flatter forever.

It’s clear from the survey that reinsurance industry participants from various parts of the chain feel that in order for pricing to turn in a meaningful way, losses will need to be a lot higher than they have ever been before, or that it will take something truly unexpected or unmodelled to shift market dynamics.

About the survey:

The Reinsurance News and Artemis global reinsurance market survey was conducted via direct outreach to our senior reinsurance and insurance-linked securities (ILS) market readership, across both Reinsurance News (62,000+ unique readers in August 2018*) and Artemis (55,000+ unique readers in August 2018*).

The survey includes responses from hundreds of identifiable re/insurance and ILS market participants, including numerous from reinsurance market CEO’s and other senior decision makers from across the space.

Overall, more than 62% of survey respondents provide input to or are responsible for reinsurance buying decisions.

Based on Google Analytics unique user numbers.

The full results of the survey are freely available online and we’re happy to discuss them with industry participants. We’re interested to hear your thoughts.

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