The estimated $136 billion in catastrophe loss estimates for 2017 is one for the record books. But resulting, widespread reinsurance price hikes in 2018 aren’t likely, Willis Re said in a new report.
“Unfortunately for reinsurers, these losses are coinciding when profitability in non-catastrophe lines is constrained and prior-year reserve releases are slowing,” the report noted. “Historically, such a combination of factors would have led to a widespread upward spike in pricing as witnessed in 2001 and to a lesser extent in 2005 and 2011.”
A number of other corresponding factors mean that a widespread price hike won’t happen, according to the Jan. 1, 2018 report: “Willis Re 1st View: Extreme Weather – Calm Market.”
Willis Re said that pricing corrections have been quite orderly rather than widespread, helped, in part, by the division of those catastrophe losses over a number of different events. Another positive factor: many of the losses took place in the primary market. Also, capital supply continues to be ample, and that has helped limit widespread increases in risk-adjusted rates on loss-free portfolios, the report states. Still, as Willis Re noted, these losses stopped a continued downward movement in risk-adjusted rates in most markets and classes.
Major findings from the report:
- Pricing across global property-catastrophe and risk programs saw average adjusted increases ranging from flat to more than 7.5 percent.
- The insurance-linked securities market still showed capacity to grow despite the onslaught of catastrophe losses in the 2017 second half. Willis Re said ILS entities grew to $75 billion in 2017, up from $24 billion in 2011, $10 billion in 2005 and $4 billion in 2001.
- M&A transactions in 2017 was about the same as the $49 billion in deals produced through 2016.
- Cyber threats remain a big concern for insurers and reinsurers alike in 2018. Reinsurers are increasingly becoming aware of silent cyber risks and are trying to assess potential aggregation levels.
Source: Willis Re/Willis Towers Watson