Damage left by Hurricanes Irma and Harvey will lead to a hardened property market and pricing correction, at least in the short-term, according to a new KPMG survey.
In related news, a new Morgan Stanley report downplayed initial concerns that insurers and reinsurers will need to raise capital due to Harvey-and Irma-related losses.
Approximately 44 percent of KPMG respondents expected a short-term hardening of the property market due to Harvey and Irma, a trend that will included reduced supply and higher premiums. In a related finding, 47 percent of respondents said they also expected a short-term correction in primary insurance pricing with a continued soft market to follow. KPMG’s conclusion is based on a survey of more than 300 senior insurance executives.
Before the soft market returns, however, insurers will face hurricane related risks as their insured losses work their way through the system, KPMG said. The top three risks in this category identified in the firm’s survey: stream of capital flow, lack of available future reinsurance coverage and lack of claim handling personnel.
Insurers are also facing continued challenges due to Irma and Harvey. Two of the top ones: challenges in assessing property damage and managing customer expectations and awareness of coverage. KPMG said that insurers were boosting claims efficiency by using drones and social media, to help customers quickly settle claims.
Morgan Stanley, meanwhile, said it sees a low risk of the need to raise post-hurricane capital among the insurers and reinsurers it covers, at least for now. The firm’s Sept. 14 report, addressing the “3 Key Investor Questions Post Irma,” concluded that “the industry should be able to absorb the combined [$30 billion to $65 billion] Harvey and Irma Losses.” (That’s $10 billion -$25 billion from Harvey, excluding NFIP losses, according to Morgan Stanley estimates, and $20 billion to $40 billion from Irma, based on early AIR Worldwide numbers.)
There are caveats, however. Morgan Stanley said that some of its reinsurers may end up having to raise capital if Irma losses reach $100 billion or more. XL Catlin, AXIS Capital Holdings and ReinaissanceRe are among those most vulnerable, Morgan Stanley said. Still, there is cautious optimism for now.
“Companies are yet to disclose the damage from Harvey and Irma but the market implied losses could still result in operating profit for most of our reinsurers in 2017,” Morgan Stanley noted. “We are still in the middle of an active Hurricane season [and] we think [insurers and reinsurers] will pause buybacks as they assess storm damage.”
In terms of pricing, Morgan Stanley predicted flat Jan. 1 renewals based on early indications from the recent reinsurance gathering in Monte Carlo. But, as Morgan Stanley noted, there could be stable and improved pricing, in part, as investors demand higher pricing as a compensation for higher perceived risks. Lots of alternative capital could mute any pricing upturn, however, according to the report.
If pricing improves, Swiss Re and XL Catlin stand to gain the most, due to their size and scope, Morgan Stanley said.
Sources: KPMG, Morgan Stanley