The multitude of catastrophic losses borne by reinsurers in the first half of the year started a murmuring that, as the US hurricane season gains momentum, is quickly turning into a cacophony. Rates must increase, reinsurers proclaim—the only issue is by how much. Cedants, however, seem unwilling to give more than they absolutely must.
T
he scale and frequencies of catastrophes that occurred in the first quarter of the year forced much of the industry to reconsider its pricing. Lines directly hit by the losses immediately increased.
Meanwhile, the more astute reinsurers are pondering the affect of other factors such as capital levels in the industry and non-existent investment returns. Many have concluded that it is time rates across the board started to increase.
“I have been in this business for more than 25 years and I am certain
that enough factors are now in place for the market to turn and start to harden,” Swiss Re chief executive Stefan Lippe tells us in an interview on page 10. “We are seeing a turning market now.” He estimates that property rates have already hardened by 5 percent across the board, but there is more to come and much greater rises are needed on casualty business.
But despite this apparent single-minded certainty on the part of some of
the big reinsurers—and Lippe is far from alone—the industry as a whole still seems undecided about whether the catastrophes earlier in the year combined with other factors such as volatility in the financial markets, hurting returns on the investment side, will lead to what can seriously be termed a ‘hardening of rates’ across the board at the end-of-year renewals. Cedants, it seems, with the exception of lines directly affected by losses, anticipate little change.
“We don’t expect rates to increase for the type of protection which we
want to buy,” says Philippe Derieux, head of reinsurance in Axa’s global property/casualty business with responsibility for buying protection. “The world has been affected by significant events this year, such as in Japan, Australia, New Zealand and the US, but up until now, there have been no significant events in Europe and we don’t expect any rate increase to our coverage which is linked to European exposures. We also don’t expect any decrease, so we are looking at stable rates. I believe it will be business as usual.”
Clemens von Weichs, the chief executive of Allianz Re, which provides
reinsurance solutions to Allianz Group companies as well as external clients, agrees that he does not anticipate major changes, but he does accept that some will be necessary. He cites the catastrophes in Asia and changes made to the US hurricane model by risk modelling company Risk Management Solutions as being two causes of this.
“We expect cat rates to increase in loss-affected regions such as Japan,
Australia and New Zealand,” he says. “For the US, higher modelled losses due to the new RMS release could have a slight upwards impact on reinsurance prices. For other regions, it is still too early to take a view as there is still abundant capital in the sector on which the reinsurers would like to generate earnings. A major additional loss event before the end of the year would be expected to have an upwards impact on cat prices also for loss-free regions.”
Brokers probably err on the side of the reinsurers, arguing that rate
increases should be anticipated. “As we sit here today, for the major European buyers, it is probably not an unreasonable expectation,” says James Vickers, chairman, Willis Re. “The rate increases that we have seen so far have been quite specific to specific territories where there have been specific losses or, in one or two cases, where there have been some macro model changes.”
Chris Waterman, managing director and head of EMEA insurance
at Fitch, believes many players on both sides of the fence are waiting to see what happens between now and the end of the year, specifically the outcome of the US hurricane season.
“Clearly, there is a significant amount of time between now and the
January renewal season, so a lot could happen in terms of catastrophic events, which could change the complexity of things,” Waterman says. “However, at the moment, in terms of premium rate increases achieved
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