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Reinsurance pricing could rise in wake of disasters: Morgan Stanley

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Reinsurance pricing could improve as the recent concentration of natural catastrophes could make 2017 the costliest on record for the insurance industry, according to a Tuesday research note from Morgan Stanley.

“We expect double-digit rate increases in property cat reinsurance, with more in the 'retro' market,” said the Morgan research.

Insured catastrophe losses could exceed $100 billion, which combined with other factors could help turn pricing positive after prolonged softness.

“We think a confluence of factors will lead to a cycle turn: (1) record losses significantly impact earnings and weaken industry capital cushion, (2) we are at a very low pricing point back to pre-9/11 levels, and (3) alternative capital could face material losses or be "tied up" in protracted claim process,” Morgan said in its note.

Property catastrophe pricing rose roughly 25% in the year following both the Sept. 11,2001, terrorist attacks in New York and Hurricane Katrina, Morgan said.

The Morgan note points out that “in a span of 26 days, Hurricanes Harvey, Irma, Maria and two powerful earthquakes devastated Texas, Florida, the Caribbean and Mexico,” with industry estimates of insured losses at $10 billion to $25 billion for Harvey, $30 billion to $55 billion for Irma, $15 billion to $85 billion for Maria, and “multiple billions” for the Mexico earthquakes, with total industry losses ranging from $70 billion to $150 billion.

The Morgan note points out that “in a span of 26 days, Hurricanes Harvey, Irma, Maria and two powerful earthquakes devastated Texas, Florida, the Caribbean and Mexico,” with a range of industry estimates of insured losses from $10 billion to $25 billion for Harvey, $30 billion to $55 billion for Irma, $15 billion to $85 billion for Maria, and “multiple billions” for the Mexico earthquakes.

Adding another roughly $20 billion for catastrophes in the first half of the year could push 2017 past 2005 and 2011 as the costliest year ever for catastrophes, Morgan said.