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Reinsurers may see cat-fueled rate surge


Reinsurance rates are likely headed higher at year-end renewals as the market digests a string of catastrophe losses.

Hurricanes Harvey, Irma and Maria will all hit reinsurers, in addition to two separate earthquakes in Mexico and storms earlier this year, observers say.

While loss estimates are still being calculated, the most recent catastrophe losses will be substantial and likely will top $50 billion in total — and could be significantly higher, according to modeling firm estimates.

While reinsurers have had relatively low catastrophe losses since Superstorm Sandy hit New York and New Jersey in 2012 and while there is plentiful capacity in the market, the 2017 losses will hit traditional and nontraditional reinsurance programs and will likely drive up prices for some accounts, observers say. However, renewal discussions have just started, and it’s unclear how widespread any increases will be if reinsurers succeed in pushing them through, they say.

Hurricane Irma, which is likely to be the largest loss so far this year, hit while reinsurance executives were gathered in Monte Carlo, Monaco, at the RendezVous de Septembre reinsurance meeting. The event traditionally marks the beginning of year-end renewal discussions as executives from reinsurers and reinsurance brokers hold numerous small meetings around the cafes and hotel lobbies of Monte Carlo to get a feel for market trends.

This year, the meeting started on a Saturday, Sept. 9, when Hurricane Irma was still threatening Miami and reinsurers were potentially looking at a $100 billion loss. By the following Tuesday, the storm had made landfall along Florida’s west coast, and it was clear that the loss would not be as devastating as feared.

At the time, it was unclear whether Harvey, Irma and other losses would affect reinsurance renewal rates. However, in the days and weeks that followed the Rendez-Vous, and after Hurricane Maria carved through parts of the Caribbean and a powerful earthquake struck central Mexico, reinsurers and reinsurance brokers became more convinced that rates would increase.

In addition, several insurers and reinsurers warned that their quarterly earnings would be hit by the catastrophes.

The combination of catastrophe losses will likely lead to increased reinsurance rates for North American property risks at year-end renewals, said Albert A. Benchimol, president and CEO of Axis Capital Holdings Ltd. in New York.

“Whatever the losses turn out to be, it will be a meaningful amount. And given the many years of intensive price competition on property and catastrophe rates, at least on a regional basis, we would expect to see some increases,” he said.

Even though there is plentiful capacity in the market, rates should still increase, Mr. Benchimol said.

“There’s capital in the market, but the capital needs to be appropriately compensated … pricing needs to reflect loss costs,” he said.

It remains unclear whether increases will extend to non-U.S. accounts and other lines of coverage, but insurers that experience reinsurance rate hikes likely will try to pass the costs on to policyholders, Mr. Benchimol said.

The storms, including Cyclone Debbie in Australia and tornadoes in the United States earlier this year, already have triggered market activity, with some insurers and reinsurers with single-event and aggregate coverage looking for backup coverage, said Mike Krefta, Hamilton, Bermuda-based CEO of Hiscox Re, a unit of Hiscox Ltd.

At year-end, “from a reinsurance point of view, I would be shocked if we don’t see material increases in pricing,” he said.

Even though Hurricane Irma was not as calamitous as feared before landfall, the cumulative losses during the year will likely push rates higher, Mr. Krefta said.

“When you tot up the end-of-year bill, the focus will be on aggregate losses,” he said.

It’s still unclear how much prices will increase, but reinsurers are pressing for rate increases at year-end, with some underwriters saying 10% to 20% increases will be needed for North American risks, said Steve Hearn, CEO of Ed Broking Group Ltd. in London.

“We are starting to see some rate coming through on the aggregation of Harvey, Irma and the Mexican earthquake,” he said.

Paddy Jago, global chairman of Willis Re in London, said it’s still too early to predict the level of losses, particularly as Hurricane Maria followed a similar path to Irma in the Caribbean.

“That will make claims from an insurance and reinsurance viewpoint challenging,” he said.