Global reinsurers are expected to report “solid underwriting profitability” in 2014's first quarter thanks to limited catastrophe losses during the period, says Fitch Ratings.
The ratings agency says reinsurers' results should be in line with results reported in 2013.
The quarter did see some significant weather events, including severe winter storms in the U.S. and flooding and winter storms in the UK, Fitch says. “We believe that losses from these events will be manageable for the (re)insurance industry, especially as the most-exposed firms are typically large, well-diversified operators with the ability to offset losses through other profitable lines and strong capital.”
Fitch adds that reinsurers' share of losses for these events will be small since they were not costly enough to trigger insurers' excess of loss property catastrophe reinsurance treaties.
“Losses for reinsurers will generally be limited to facultative, per risk and pro rata quota share reinsurance treaties,” says Fitch. “In the case of the U.S., this was partly due to increased retentions by primary-insurance companies over the last few years, as improved capital positions have allowed insurers to retain more risk.”
Fitch cites an Insurance Information Institute report noting that winter 2014 could rank among the top five in U.S. winter-storm insured losses since 1980. I.I.I. said January losses alone totaled at least $1.5 billion. “The significant snowfall and record severe cold resulted in increased claims for both personal- and commercial-lines insurers,” says Fitch, with claims stemming from roof collapses, power failures, frozen and burst pipes, auto accidents and business interruption. “Once the insured losses from all the 2014 winter storms are aggregated, it will push the total for the year above the $2 billion in losses registered from winter events in 2013.”
As for the UK floods and winter weather, Fitch says the Association of British Insurers estimates £1.1 billion ($1.8 billion) in insured losses “due to an historic amount of rainfall that was also the result of the abnormal strength of the jet stream. While the wind strength of individual storms was not exceptional when compared with others in recent years, the rapid succession of storms and accumulated rainfall was.”
Reinsurance rates still under pressure
While underwriting profitability is expected to be strong for the first quarter, reinsurance pricing remains under pressure due to an excess of capacity. In an interview with Bloomberg, James Vickers, chairman of broker Willis Re's international reinsurance unit, said, “It's a pretty difficult situation for reinsurers. The trend seen at the Jan. 1 renewals is continuing with no sign of any let-up.”
The Bloomberg article cites pressure from capital-market investors, with Vickers wondering how far rates will eventually fall. “How much more do they need to go down before capital markets lose interest and supply gets closer to demand again?” Vickers asks.
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