Reinsurance renewals muted to start 2019, market concerns mount
Upward movement in property pricing was limited to localized activity while sector losses put pressure on other lines.
The overall impact of catastrophe losses on property rates was muted for reinsurance renewals at the beginning of 2019, but the fourth highest annual catastrophe loss year on record did create questions over pricing adequacy, underwriting strategy, and the amount of capital available, Guy Carpenter & Company LLC, a wholly owned subsidiary of Marsh & McLennan Companies, said in a recent statement.
The company said potential sector pressure from global catastrophe losses in the second half of 2018 and the continued development of 2017 claims was partially offset by plentiful capacity. Its Global Rate on Line Index, a measure of change in catastrophe premium dollars paid year-on-year, increased just 1.1% despite back-to-back years of major loss accumulation as a result.
Contributions to the Index from the two largest sectors, the U.S. and Europe/Middle East/Africa, increased 2.6% and decreased 2.5%, respectively.
There was, however, a wide degree of variation within these results depending on account specifics. Uncertainty around Brexit affected willingness to use Lloyd’s capacity for some European renewals, but this had little effect on renewal outcomes as additional capital was available. Japan also experienced significant catastrophe activity but any renewal impact will not be evident until the April 1 renewals conclude.
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A more challenging environment
Conditions for upcoming 2019 renewals are uncertain as capital providers integrate the recent experience into their market approach. While upward movement in property pricing was limited to localized activity, the effects on profitability from losses in this sector put pressure on other lines to achieve or maintain self-sustaining levels.
As the industry continues to refine the process by which capital supports risk, the evolving nature of those risks is creating additional challenges. Climate change may shape the industry’s future assessment of exposure to loss, and emerging risks such as cyber have the potential to rival or exceed the exposure from any event currently considered.
“While the impact on January 1 renewals overall was muted, this was a more challenging environment for some segments than it was a year ago,” David Priebe, vice chairman at Guy Carpenter, said in a press release. “The industry is dealing with questions of pricing adequacy and where and to what degree adjustments might be needed. Finding equilibrium was not always easy and questions remain coming out of this renewal.”