Reinsurers were able to increase rates throughout January renewals but not by as much as some may have thought, an expert has said.
John Carroll, head of broking at
Aon Benfield, said that despite major loss activity in the US and elsewhere in the latter stages of 2017, reinsurers were only able to boost prices slightly during January renewals.
“There was strong talk from market participants that the reinsurance pricing cycle was going to see a positive correction,” Carroll told
Insurance Business.
“As more details of the impact from these hurricanes (as well as several other major catastrophes during the year such as the Californian wildfires) emerged, it became apparent that the events were manageable and well-spread. It became clear that the extremely well-capitalised reinsurance market would be able to absorb the losses without compromising the availability of reinsurance capacity.
"As a result, with the losses being more of an earnings driver and no loss of capital servicing the market, excess capacity levels available to insurers kept a lid on any significant pricing correction in the market.”
With January renewals a key time for the global reinsurance industry, Carroll said that while reinsurance pricing did increase, particularly for loss impacted regions and programs, the shift was “orderly” and strong competition ensured that increases for unaffected areas were in the low- to mid-single digits.
Much has been made of the presence of alternative capital in the reinsurance market, which has helped stem price rises over the course of the last several years. The natural disasters of 2017 gave this alternative capital its first real test, Carroll noted, and the market responded well.
“The alternative capital sector has responded well to its first real test and has come of age as a committed source of reinsurance capacity,” he said.
For Australian insurers, the main window for reinsurance renewals comes in June and Carroll said that the expectation is for mid-single digit, risk-adjusted rate increases.
“Australia and New Zealand have seen localised loss activity (Melbourne hail, Cyclone Debbie, Kaikoura earthquake, etc.) that will undoubtedly stress the lower layers of insurers’ catastrophe placements,” Carroll continued.
“In general, however, the market remains attractive and a continued source of diversification for the international reinsurance market.”
Globally, Carroll said the reinsurance market is expected to continue to focus on “putting a floor on price erosion” as price increases seen in January are expected to flow through renewals in the first half of 2018.
“Absent other events or market disruptions, I don’t, however, believe this will signal an uptick in the pricing cycle for the longer term,” Carroll continued. “The excess capacity levels will ensure strong competition for placements that will moderate pricing levels into the future.”
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