Management of Bermudian insurance and reinsurance group Everest Re told analysts from Goldman Sachs that they expect property catastrophe rates to rise at the key January 2019 renewal season and at Japanese and Florida renewals later in the year as well.
After the major losses of 2017 and now also 2018 the expectation is that property catastrophe rates need to be reset, with markets entering these end of year renewals with much more conviction than in prior years it seems.
Goldman Sachs analysts recently met with Everest Re management to discuss the state of the market and prospects for the re/insurer, finding the management team bullish about the prospects for higher rates.
Property catastrophe reinsurance pricing is expected to increase, starting at the January renewal but then continuing at the Japan focused April 1st renewal and Florida focused June 1st renewal seasons as well.
Third-party capital investors are anticipating rate increases as well, the management team had said, which is encouraging for the market dynamic is it suggests deployment of capital at decreasing rates may have come to an end this year.
The 2017 losses alone may not have been enough to drive this change, but it seems 2018’s losses on top have been sufficient to drive a determination to secure better rates.
The reinsurance and retrocession renewal market dynamic is being affected by more than just capital availability and losses though, the management team from Everest Re told the analysts.
The state of the market at Lloyd’s and the restructuring there is also driving some January renewals to be late, it seems, as re/insurers continue to work to determine their protection needs, made all the more difficult by the continued loss creep and recent losses such as the California wildfires.
More alternative capital is trapped now, as the January renewals approach, than at the same time last year, which has led to a different dynamic and expectations are that there won’t be a glut of freshly raised capital to deploy this year, as was seen for the 1/1 2018 renewals.
At the same time redemption requests have increased in the ILS market, as some investors look to withdraw or change their allocation strategy, leading to further churn and an expectation that there won’t be much, if any, ILS market outright growth until further into 2019.
Everest Re’s management said that the company will itself be more selective about where it chooses to deploy capacity to property catastrophe reinsurance, especially with respect to the retro market, in 2019. However, we’d imagine if rates are moving north then Everest Re will look to take advantage of this, as to will many other larger re/insurers.
The firms outlook aligns with the market chatter we are hearing, that renewal negotiations are pointing towards a firmer property catastrophe reinsurance market in 2019, if not fully hard.