Best’s News & Research Service - October 21, 2019 11:55 AM (EDT)
Best’s Commentary: Reinsurance Earnings Again Likely to Bear Brunt of Catastrophes
- October 21, 2019 11:55 AM (EDT)
Oldwick //BestWire// - AM Best expects reinsurers earnings to see further erosion in 2019 following another year of major catastrophe losses; however, the spate of catastrophe events may prolong the positive momentum that reinsurance pricing has experienced throughout 2019.
In a new Best’s Commentary, titled, “2019 CATs Expected to Once Again Dent Reinsurance Earnings,” AM Best states that recent events such as Hurricane Dorian in the Caribbean and United States and typhoons Faxai and Hagibis in Japan likely will have a meaningful impact on the profitability of and pricing conditions for global reinsurers and retrocession players. The loss creep from last year’s Typhoon Jebi into 2019 has been a learning curve for many market participants, and as a result, some reinsurers to date have been conservative in providing loss estimates.
AM Best anticipates a continuation in rate increases for the Jan. 1, 2020, and the Apr. 1, 2020, renewal seasons, with Japan-exposed reinsurers demanding higher returns for underwriting these exposures. Additionally, most market participants may demand higher rates to mitigate the potential increased losses in acknowledgment of a higher frequency of these larger-scale events. Additional capacity crunch also is possible in the retrocession market. Rate increases in the retrocession space eventually should trickle down to the lower layers in the reinsurance sector, further pushing rate increases in the short to medium term. Many insurance-linked securities (ILS) investors that have seen their capital trapped by ongoing development of the 2018 events also may face similar conditions from 2019 events. ILS managers may therefore struggle once again to replenish their funds, unless investors are granted commensurate compensation for these expected losses.
AM Best believes companies will need to maintain a strong level of discipline and demand more pricing to justify the deployment of capital in some of these loss-affected geographies.
To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=291059 .
AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry.