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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.
Analysts at Morgan Stanley said that reinsurers need to tap into alternative capital instead of raising equity to help them deal with losses from hurricanes Harvey and Irma, Artemis.bm reported. Reinsurers may need to move quickly, as "magnitude and duration of a potential upturn could be muted by the availability of ample alternative capital," the analysts said.