Year of the Pig may mean ‘back to normal’ for the insurance industry - Markel

Year of the Pig may mean ‘back to normal’ for the insurance industry - Markel | Insurance Business

Year of the Pig may mean ‘back to normal’ for the insurance industry - Markel

In the Chinese zodiac, 2018 was the year of the dog, and it didn’t hesitate to bear its fangs in terms of catastrophe damage, making it one of the worst years for the insurance industry in the past decade.

However, according to Matt Cannock (pictured), managing director of Asia at Markel International Singapore, 2019, most of which is under the year of the pig, could be a return to ‘normality’ following a tumultuous year of the ferocious guard dog rather than the gentle lap dog.

Several major catastrophes occurred in 2018, including Typhoon Jebi, which was the most powerful storm to make landfall in Japan in 25 years, while Hurricane Michael was the most intense to hit the United States since 1969. Super Typhoon Mangkhut was the most powerful storm in 35 years to strike Hong Kong, which is a market containing well-insured, high-value assets and not typically seen as exposed to natural catastrophes.

Due to the increased catastrophe activity in the past few years, the industry has undergone several changes. Cannock told Insurance Business that the industry seems to have mostly abandoned traditional pricing cycles, adding that natural catastrophe losses no longer drive capital away from the markets as they once did. Thus, without that contraction of supply there is no longer a ‘natural’ increase in pricing.

“Without this mechanism, underwriters must have accurate and inviolable pricing and companies must be prepared to see incomes decline to maintain profit where pricing is insufficient,” he said. “This process was brutally illustrated by the Lloyd’s insurance market business planning process.”

Despite the difficulties that hounded 2018, insurance saw a bright spot in insurance-linked securities (ILS), due to the absence of large-scale capital flight.

“I think that insurance-linked securities are now a well-established part of the insurance / risk management industry and will continue to be so,” Cannock said. “Capital has always been drawn to insurance and with the increase in global supply of capital this will continue.”

As for 2019, “the early forecasts seem to indicate an ‘average’ season on the Gulf of Mexico but the insurance impact of any one hurricane is very dependent on the track it takes,” Cannock said. “The real test will be whether there are any more unexpected or excessively large expected events which are linked to climate change. If this happens for the third year in a row, then reinsurers may well have to adjust to a new ‘normal’.

“Leaving aside predictions then, what the industry needs is a year of ‘normality’: Disciplined, accurate pricing commensurate with the risk and prudent, accurate reserving.”

These can be achieved by implementing buyer-driven solutions that seek to address needs and are less reliant on price as a selling point, Cannock said. Insurers must also be willing to walk away from poorly priced business to allow pricing to correct and exposures to be addressed holistically and avoid merely throwing money at problems to solve them.

Whether or not these corrections will become reality, Cannock said: “It would be easy to insert a ‘flying pig’ comment here but the dog has taught some hard lessons so here’s to hoping they have been learnt.”