2017 was filled with extreme weather of historic proportions. Across the globe, hurricanes, earthquakes and wildfires, to name a few, swelled to catastrophic levels.
With the recent catastrophe loss estimates in the U.S. at $136 billion, 2017 is proving to be one of the worst loss years on record for the global reinsurance market. Fortunately, traditional reinsurers remain strongly regulated and capitalized while being supplemented by the continued growth in Insurance Linked Securities (ILS) capacity, according to the Willis Re 1st View report for January 2018. The report, provided three times a year, delivers the first view on current market conditions at the key reinsurance renewal seasons: January 1, April 1 and July 1.
In reviewing the events of 2017, the report notes that the global reinsurance industry has helped to alleviate the impact of the losses. The speed of claims payments from reinsurers to their clients has been “exemplary,” the report says, particularly in the Caribbean where many primary companies are highly reinsurance dependent. Requests for advance payments have been promptly settled and “the true value and purpose of reinsurance has again been reinforced.”
As the risk for further extreme weather events remains imminent, the report notes that the role of reinsurers in 2018 and beyond will prove “crucial” in alleviating the impact of future losses.
The report reflects on the property, casualty, specialty and capital markets in 2017. Keep reading to learn some of the key takeaways from this report, organized by region.
Property markets by region
- Asia: Overall price movements points to risk-adjusted flat but there were diverging views on how to make that calculation.
- Australia: Reinsurer appetite remains limited for low-level catastrophe layers and aggregate covers; as a result, pricing remains challenging in this area.
- Europe-wide: With the exception of some smaller, more regionally impacting events, Europe as a whole has seen a benign catastrophe year during 2017.
- The Middle East and North Africa: Markets continue to stay competitive as it achieved a risk-adjusted flat renewal for loss-free programs despite higher initial expectations.
- Latin America: Despite the main catastrophe events to affect the region in the third quarter of 2017, losses have not changed Latin American reinsurer appetite and capacity remained at previous levels.
- United States — Nationwide: Significant extreme weather events in the third and fourth quarter of 2017 resulted in a slow-developing renewal season, with reinsurers initially pushing for significant increases; however, these were mostly discounted as firm orders came in late and well below most reinsurers' expectations.
Casualty by territory
- Australia: Most reinsurers sought a minimum risk-adjusted flat rate for non-loss affected programs and rate increases for loss affected accounts; however, the range of rate changes varied widely. Reinsurer appetite for cyber continued to grow, outstripping demand from buyers.
- Europe — General Third Party Liability: The renewal season has focused primarily on pricing rather than technical or coverage issues. Traditional reinsurance leaders have been seeking substantial rate increases and consequently, there has been a wide range in quoted terms.
- United States — Motor Liability: Personal and commercial auto carriers continue increasing rates across the country to offset increased claim frequency and severity.
- United States — Workers’ Compensation: Heading into 2018, the working layers are facing a tightening market as primary pricing has been decreasing, resulting in reinsurers raising prices to offset these declines.
Specialty: Commentary by line of business
- Global — Cyber: Reinsurers anticipate increased demand as a result of forthcoming General Data Protection Regulation and similar regulations; however, U.S. businesses still predominates.
- Aerospace: After many years, signs of firming in both the aviation insurance and reinsurance markets has been evident.
- Marine: New capacity came into the market in anticipation of the hardening market, reducing the impact of the rate increases.
- ILS investors have suffered a considerable amount of natural catastrophe losses in the second half of 2017.
- Merger and acquisition transaction volume in the global reinsurance sector finished 2017 on a par with 2016’s $49 billion.
- As usual, North American activity led the way with approximately $23 billion of deal volume, followed by Asia and then Europe. Globally, life insurance deals outpaced non-life by a wide margin.
Although the numbers may lead some to think it has been a disappointing time for reinsurers, this perception needs to be balanced against the aptitude of the market to provide buyers with the stability of capacity at reasonable prices with an orderly renewal process. As we enter 2018, the role of reinsurers and its continued development will be vital for market stability across the globe.
For more information, or to obtain a copy of the report, visit Willis Re’s website.