The talk of the morning is one of stabilising property reinsurance pricing following the impacts of hurricanes Harvey and Irma in the last fortnight, with some analysts even suggesting a little localised firming in specific pockets of the market.
Hurricane Harvey is assumed to have caused an insurance industry loss of around the $20 to $25 billion mark, with Munich Re suggesting up to $30 billion yesterday in Monte Carlo at the reinsurers briefing during the Rendez-vous event.
Hurricane Irma, which is continuing to lash Florida right now, has already caused a number of billions of insured losses in the Caribbean, where insurers tend to use ample reinsurance protection just like in Florida. Hence Irma is expected to be largely a reinsurance loss, with estimates from AIR Worldwide suggesting up to $65 billion and RMS saying there was a 10% chance that insured wind losses from Irma exceed $60 billion.
RMS also noted however that storm surge could raise the eventual insurance industry loss by as much as 30% in some scenarios, and post loss amplification of a complex storm like Irma could hike the bill for insurance and reinsurance firms by another 15%.
Given the excess capacity in the market, which JLT Re’s David Flandro estimated as being around $60 billion at a panel discussion led by S&P yesterday in Monte Carlo, there is capital available to largely soak up these losses and reports of ILS managers readying new post-event structures and with capital already committed.
That could suggest any pricing movement would be muted, but the market seems to believe the combination of Harvey and Irma, as well as some losses from the Mexico earthquake, all coming on top of a vigorous U.S. severe thunderstorm season, could be enough to install the much discussed pricing floor, at least in pockets.
Global reinsurer Swiss Re said this morning that it expects reinsurance price stability to be seen in property lines of business, due to the impacts of recent catastrophe loss events.
The firm also stressed that it would maintain its underwriting discipline, which does suggest an element of wanting to force the floor into place.
This is what we’re also hearing from other reinsurers and brokers, that the events while not large enough to drain reinsurer capital are enough to make reinsurers nervous and increase the pressure they will apply to hold up pricing. That suggests a floor may be a little artificial in nature and may not last all that long, without something else happening.
Analysts at Morgan Stanley said that while Irma’s impact was bad the storm was not as devastating as had been anticipated, adding that the P&C industry has a sufficiently strong balance sheet to weather it.
The combined losses from Harvey and Irma could near $100 billion, which the analysts believe “should halt the pricing decline and could lead to improving rates.”
However, they also note that the, “magnitude and duration of a potential pricing upturn could be muted by the availability of ample traditional and alternative capital.”
Analysts at KBW said that P&C stocks could trade back up today, as the hurricane Irma impact is less than was expected on Friday, so insurance and reinsurance firms could regain some lost value.
“We doubt Irma will be an industry-wide capital event,” the analysts explained, and “We expect some marketplace disruption, and some property cat rate increases, but both probably trailing past mega-disasters’ precedents.”
However, KBW’s analysts warned that there could be some surprises, with “A few as-yet unidentified risk-bearers (traditional reinsurers and/or ILS investors)” likely to take a disproportionately large share of the loss.
Additionally, the KBW analysts said they remain “very concerned about the “unknowability” of individual Bermudians’ losses,” which perhaps hints at where some of the unidentified risk-bearers may emerge.
Losses from Irma will fall well within the reinsurance limits in Florida, with it only an earnings event for P&C insurers, KBW said, with the majority of the event falling to the reinsurance market.
But showing their concern about Bermuda’s reinsurers, KBW said; “We think the combination of Hurricanes Harvey and Irma demonstrate Bermuda-based capital’s vulnerability to multiple hurricanes in a single season.”
Analysts at Credit Suisse agreed with the sentiment from their competitors, saying; “While Irma may be costly to reinsurer book values, Irma alone should not trigger the need for additional capital.”
Credit Suisse’s analysts said the combination of events are positive for pricing and that any uplift to pricing would be positive for the P&C players, but added that Irma may not have been the event that drained sufficient capacity or hit the ILS market hard enough to really cause rate increases.
Stability in rates is perhaps more likely than market-wide price increases, although there could be localised increases, particularly to any cedent programs that are hit particularly hard.
But the upwards trajectory many hope for seems less likely to be steep, or particularly sustained without further loss events striking the industry.
There are pockets of the market where recent events will lead to more pain though, and here there may be a possibility to enforce rate rises for longer.
The overall consensus seems to be that the hit from multiple events leading to around $100 billion of industry impact is likely enough for stabilisation, at least in property cat reinsurance, with some localised price increases in loss affected areas and programs, but not enough for a hardening of the reinsurance market.
How capital inflows from the ILS market affect this remains to be seen, but it could make for a very interesting market dynamic in January, if the traditional side are pushing for price rises while ILS markets remain focused on their existing margins.
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