According to a report by Willis Towers Watson’s reinsurance division, the year 2017 is shaping up to be one of the worst loss years on record for the global (re)insurance market.
The “1st View” renewals report, prepared by Willis Re, pegged recent catastrophe loss estimates for last year at around US$136 billion. According to the report, “the catastrophe losses of 2017 are coinciding at a time when profitability in non-catastrophe lines is constrained and prior-year reserve releases are slowing.”
The report also mentioned that despite the losses, pricing corrections have not seen a significant spike. This is due to a combination of strong reinsurance market capitalisation, the losses being split over several different catastrophe events, and the fact that a large portion of the losses were retained within the primary market.
Willis Re noted that the ILS market managed to remain resilient during the catastrophe losses in the second half of 2017. The report also found that traditional reinsurers’ Q3 2017 results revealed that although the losses were an earnings event, the impact on capital has been comparatively subdued with average capital impairments within the range of 5% to 7.5%.
Other findings of the report include:
- Catastrophe losses have stopped a further downward movement in risk adjusted rates in most markets and classes.
- The continued supply of capital has helped curtail widespread increases in risk adjusted rates on loss free portfolios.
- Pricing across global property catastrophe and risk programs is seeing average adjusted increases of 0% to 7.5% with a few outliers either side of this range.
- Evolving cyber threats are a major concern for the industry in 2018. Recognition of silent cyber risk continues to grow in the market with reinsurers trying to assess potential aggregation levels.
- Merger and acquisition (M&A) transaction volume in the global insurance sector finished 2017 on a par with 2016’s $49 billion.
- ILS investors have replenished their capital and continue to trade forward with modest spread increases for loss affected perils.
“No commentary on the January 01 renewal season can overlook the scale of human suffering and economic loss that the catastrophes in the second half year of 2017 have caused,” said Willis Re global CEO James Kent. “The global reinsurance industry is central to alleviating the impact of the 2017 hurricane losses. The speed of claims payments from reinsurers to their clients has been exemplary and the value of reinsurance has been illustrated to many clients yet again. Clearly the 2018 renewal season will for many reinsurers be a disappointment in terms of the rating levels achieved.”
“However, this must be balanced against the ability of the market to provide buyers with stability of capacity at reasonable prices with an orderly renewal process, which demonstrates the growing advancement of the market,” he noted.
Kent added: “As society as a whole is starting to look more closely at the role the global reinsurance market can play in helping to close the economic loss gap, the stability of the market bodes well for its future development.”
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