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Natural disasters put pressure on reinsurance pricing

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CHICAGO — The reinsurance market will likely see an upward adjustment in rates at Jan. 1 renewals, according to executives on a reinsurance panel Tuesday at the Property Casualty Insurers of America Association’s 2017 meeting in Chicago.

“We’ve lived through just unprecedented natural catastrophe activity,” said Stan Galanski, president and CEO of Navigators Group Inc., who moderated the panel.

With industry insured losses from the hurricanes, earthquakes and wildfires in September and October estimated to be as much as $100 billion, some see increased rates as a result.

“In the last quarter, roughly $100 billion could be leaving our industry,” said Brian Quinn, CEO of North America for Odyssey Re Holdings Corp. in New York. “It’s hard to see how an industry with that sort of reduction in capital over such a brief period in time could lead to anything other than a meaningful change in rate.”

The current context points to a need for better returns and goes beyond just the recent string of natural catastrophes.

“If you look at the basic economics and profitability in the reinsurance sector, I think it’s realistic to expect an upward movement in rates given the facts as they are,” said Steve Levy, president of reinsurance with Munich Reinsurance America Inc. in Princeton, New Jersey. “I think the underlying economics suggest a certain direction with respect to where we will be going 1/1 and beyond.”

Other panelists agreed.

“I do think we are perhaps in a different industry than we were before,” said James Kent, global deputy CEO and North America president of Willis Re in New York. “There’s been a run of large catastrophe events, but it’s not just cat that the industry is talking about. Are we getting adequate returns?”

“If we can’t achieve as an industry a cost of capital return after a year which is likely to see the worst catastrophe losses in history, then there’s a real fundamental issue,” Mr. Levy said.

Despite the sector’s economics, most on the panel agreed that each client is an individual case and a uniform result should not be expected.

“There’s been so much talk about the market and what they’re really talking about is natural catastrophe as a sort of proxy for the market discussion,” said Eric Andersen, CEO of Aon Benfield in Chicago. “I don’t really buy into the market is going to be up 10% around the world or the market is flat. Ultimately, the market is made up of individual customers, and each portfolio is different.”