April renewal a potential catalyst for pricing, as Japanese losses creep

Share

Insurance and reinsurance market loss estimates for catastrophes and severe weather that struck Japan in 2018 continue to creep upwards, leading some analysts to suggest that the April renewal could prove a needed catalyst for pricing.

april-reinsurance-renewalAs the January renewal again failed to deliver on the price increases many had hoped for all eyes now turn to the renewals later in the year, with Japan and Florida both viewed as regions where rates may tick up.

But the Japanese reinsurance renewals on April 1st 2019 are seen as a particularly important juncture, with the potential to prove a catalyst for pricing if rate increases are achieved.

Japanese insurers were hit hard in 2018 by loss events including typhoons Jebi and Trami, the extreme rainfall and flooding in July, and earthquakes in Osaka and Hokkaido all resulting in industry losses large enough to trouble some companies.

The latest estimates of industry losses for typhoon Jebi sit at roughly $9 billion, typhoon Trami at around $3 billion, and the severe rainfall and flooding is estimated to have cost re/insurers roughly $2.7 billion. The Osaka earthquake was another $1 billion insured loss event as well.

However, it’s understood from market sources that these estimates may still prove too low, at least for the two typhoons and perhaps the rainfall related flooding.

With these loss events having triggered some Japanese insurer aggregate reinsurance arrangements and also hit some of the major global re/insurers that have commercial underwriting operations in Japan, there is a chance of upwards price pressure manifesting in April, particularly as there are some large and dominant players with significant exposure in the region, not least Swiss Re of course.

Analysts at Deutsche Bank believe that April could be “a positive catalyst for reinsurers,” particularly as the Japanese market remains one where traditional payback is a feature.

With some very large global players commanding significant market shares in Japan, both on a reinsurance and also primary basis, it’s possible these big reinsurers have the market-power to push for price rises in the region, if they chose to.

But Japan is of course seen as a diversifier as well and many would tell you that reinsurance rates remain very low in the country, too low perhaps.

Often insurance-linked securities (ILS) players have described Japan as a difficult market to build a significant portfolio in of anything other than very risk-remote positions, as the large global reinsurers underwrite renewal business at pricing close to expected loss levels given their ability to discount for the diversification it offers.

Being less globally diversified, many ILS funds have been unable to gain the market share they would like in Japan, hence any price increases at the April renewal may just serve to make the Japanese reinsurance market more attractive to fully collateralised business models.

The analysts say there is a “high likelihood” that the big four reinsurers losses from the typhoons will have crept upwards, which aligns with what we are hearing from the market.

Whether that will be a sufficiently large hit to the global players to cause them to enforce higher pricing remains to be seen.

But if the prices do rise in April it could prove a catalyst for mid-year renewals as well, as any uptick from the baseline rates currently seen in peak catastrophe risks can only serve to add more pressure to raise rates in Florida and other loss impacted regions of the United States.

Deutsche Bank’s analysts say they forecast rate increases of up to 10% at the Japanese reinsurance renewals in April, although being a smaller market this is only a marginal increase across the major reinsurers books.

But for ILS players that want to write more Japanese business, but have found rates lacking in recent years, the prospect of any increase in rates could help them to expand their underwriting in the country which would be a positive for those looking to add greater global diversity.

Any ongoing loss creep from Jebi, Trami and other Japanese events, while unwelcome for some, could help to increase the chances of April being a positive catalyst for rates on a forward basis.

However, it’s worth noting that brokers including Aon have warned to expect similar market dynamics in April to those seen in January, suggesting some will be left disappointed by price once again.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.

Read previous post:
Watford Re, investment oriented reinsurer backed by Arch, targets IPO

Watford Holdings Ltd., the Arch Capital and Highbridge Principal Strategies backed parent to investment oriented or total-return style reinsurance firm...

Close