Hurricane Matthew won’t move the dial for reinsurers: Universal CRO

Despite hurricane Matthew making landfall on the U.S. coastline and causing expected insured losses in the billions of dollars, it’s not expected to have any positive impact on pricing in the reinsurance market with the sector remaining heavily capitalised, according to Jon Springer, President and Chief Risk Officer (CRO), Universal Insurance Holdings, Inc.

In the days of its approach to the U.S. coast, industry experts and observers were keeping a keen eye on hurricane Matthew, as forecasts predicted the storm to make landfall along the U.S. coast as a strong and intense storm.

However, the track of the storm meant that certain areas with high concentration of assets were avoided, and while the storm did cause extensive damage, it was far less severe than some had anticipated and initial forecasts predicted.

Springer, during Universal’s third-quarter 2016 earnings release call, discussed the impact of Matthew on the firm’s balance sheet and also on the broader reinsurance marketplace.

Both economic and insured loss estimates continue to be released and updated for the event, ranging from an insured loss of up to $5 billion in the U.S. and $3 billion in the Caribbean, to an economic loss of $10 billion in the U.S. alone.

“Given the capital position in today’s reinsurance market, I don’t think that even moves the dial at all,” said Springer, referring to the potential insurance and reinsurance industry loss from hurricane Matthew.

“In fact, I’m not sure it’s even a noticeable event for the vast majority of our reinsurance partners,” continued Springer.

With the global reinsurance market under significant pressure on the investment and underwriting side of the balance sheet, as interest rates remain low and competition continues to negatively impact rates, the removal of a substantial amount of the sector’s capacity is likely required to start a turn in the market.

But as noted by Springer, and also other industry experts and observers, hurricane Matthew, while damaging and costly, is unlikely to result in any meaningful impact on rates owing to the excess supply of total reinsurance capacity from both traditional, and increasingly alternative reinsurance providers.

For the most part, the message from re/insurance industry analysts is that Matthew losses are likely to fall within catastrophe budgets, and Universal revealed that it utilises an extensive and comprehensive catastrophe reinsurance programme to insulate itself from potential losses such as this.

Expanding on the company’s catastrophe reinsurance programme, which we discussed at Artemis earlier in the year, Springer explained; “As respect to hurricane Matthew, as a reminder, the UPCIC reinsurance program contains a pre-tax net retention of $35 million for our core all states catastrophe tower and also includes a supplemental catastrophe tower covering all states outside of Florida, with a pre-tax retention of $5 million.”

“Given current loss estimates for hurricane Matthew in Georgia and the Carolinas, at this time, we are indeed expecting a reinsurance recovery from the first layer of the supplemental other states reinsurance tower. Reinsurers have been notified and several have already offered to advance funds,” advised Springer.

A number of insurers and reinsurers have provided their initial loss estimates from hurricane Matthew, and initial reports suggest that reinsurance will cover a sizeable share of the overall insured industry loss. In recent times buyers of reinsurance protection have been taking advantage of favourable terms and conditions and an abundance of efficient capital, which has supported the securement of comprehensive catastrophe reinsurance programmes for companies such as Universal.

So Springer is the latest industry expert to warn that while hurricane Matthew will see a number of insurers and reinsurers take a hit, the dynamics of today’s global reinsurance market suggests it’s nowhere near costly enough to turn the softening landscape, and result in any uptick in rates.

But such an event is a timely reminder to the industry that the benign loss environment won’t last forever, and losses will start to mount. And with reserves reportedly running thin and competition remaining high, efficiency and discipline are likely to remain an essential part an insurer and reinsurers’ make-up in the challenging operating environment.

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