Keith Harrison, CEO, UK & Europe, JLT Re
JLT Re was first to announce that 2017 would end up being the most expensive cat loss year on record after estimating total insured losses would exceed US$140 billion.
But we also predicted that the traditional and ILS markets would respond well to these losses due to the abundance of capital in the market.
Fast forward a few months and the rapid reload of alternative capital following the landfalls of Hurricanes Harvey, Irma and Maria has prevented the type of market reaction that followed other large-loss years and mostly capped price movements to single-digit increases through this year’s mid-year renewals.
Or in other words, there has been no hard market.
Property cat losses
But what if 2018 produced another US$140 billion in cat losses? The property market might respond in exactly the same way again, albeit with a little more pronounced firming, because ultimately new capital is likely to continue to flow, target property, and suppress rate rises. A pattern repeated for property-cat then, perhaps.
But it might not be quite the same story for other reinsurance lines, especially casualty and some specialty classes now that carriers can no longer rely on high-margin property business to subsidise pricing in these areas.
In fact, firming price environments and more cautious risk appetites are already evident in certain casualty lines: US workers’ compensation per person excess of loss and commercial auto to name a few. Years of soft insurance and reinsurance pricing, a rise in claims severity and dwindling reserve redundancies have led to some challenging loss ratios.
The perceived need for higher casualty pricing, and reinsurers’ willingness to push for it, might just be the more profound change if 2018 turns out to be another heavy catastrophe year.
After all, there is no new casualty ILS capital to dampen casualty reinsurance price increases, just traditional market competition that could be somewhat stressed.
Thoughts from us in London then are not of foretold hardening, but more of ‘what if’ readiness as those who fail to anticipate, who have no contingency plan, might find they have fallen into a false sense of security that comes from a muted and lulled market response to 2017’s cat losses.
Please contact Keith Harrison on +44 (0)20 7886 5308 or firstname.lastname@example.org