Eyes on the horizon as 2019 looms ahead

20-12-2018

After a tough couple of years what might lie ahead for the reinsurance market in 2019? Bermuda:Re+ILS reveals the results of its latest reader survey.

The New Year is almost here and as the festive fireworks are readied and the champagne chilled for midnight on New Year’s Eve, the reinsurance market is looking at what 2019 will bring.

Any trepidation is excusable. The past two years, 2017 and 2018, have both been ones of large losses from natural catastrophes. Hurricanes have ravaged wide parts of the US, other storms have hit Europe and above all wildfires have darkened the skies over California, setting new records in terms of damage—and insured losses.

But the market is always aware of other challenges, as our poll shows. We asked our readers “As we look forward to 2019 what do you think will be the most important factor that the Bermuda market will have to face, and why?”

The responses, with readers able to choose more than one option, show a wide range of worries about the market as it stands at the moment. llook-forward-to-2019-what-do-you-think-will-be-the-most-important-factor-that-the-bermuda-market-will-have-to-face-and-why.jpg

The 2019 Atlantic hurricane season was picked as the most important factor by 11 percent of respondentsThe 2019 Atlantic hurricane season was picked as the most important factor by just 11 percent of respondents, a surprisingly low number given the fact that we have had two years of increased hurricane activity that has laid waste to large areas.

A similarly small number of readers—just 11 percent again—chose wildfires in the US. It’s possible that some might think that there is little chance of Northern California going up in flames for a third year in a row, but a persistent drought in that state coupled with the impact of global climate change might mean the market could face yet more losses in 2019.

Brexit was the option with the second highest number of votes—33 percent said they thought that the ongoing conundrum of how exactly the UK is going to leave the EU was going to be the most important factor of the year.

As there was an impassioned pre-Christmas debate going on in the Houses of Parliament as to the exact nature that Brexit will take—with everything from Premier Theresa May’s much-criticised deal, through the slim chance of a second referendum to the bleak possibility of a ‘hard’ Brexit up for debate—it’s wise for Bermuda to wonder what might emerge there. The Island might be able to take advantage as a mid-Atlantic location for re/insurers who are worried about just how expensive or legally complicated doing business in the UK might become.

However, it was the issue of possible movement in rates that dominated the rest of the responses to the survey. A total of 44 percent of those who took part in the survey said they thought that rates would harden over the coming year.

It’s understandable for people to want this to be true. Rates have been falling for years and the recent years of losses have only caused a diminution of the rate decreases—not a total cessation of them. Increases would make many lines more profitable, something that would be widely welcomed in a market where merger and acquisition activity has increased as companies turn to economies of scale in a bid to make the most out of potential profits.

However, not everyone thought that rates would increase. There were also some minority views on this. Eleven percent of those polled said that rates would stay the same, a somewhat worrying prospect for many as the end of year renewals see the ink drying on the signatures and thoughts turning to the first quarter renewals after that.

The remaining 11 percent had an even bleaker perspective on rates—they think rates will continue to decrease.

Which brings us to the second survey that is relevant to readers of Bermuda:Re+ILS. We also asked: “Is the market cycle dead or has it merely flattened out for a while?” is-the-market-cycle-dead-or-has-it-merely-flattened-out-for-a-while.jpg

Not one respondent thought that the market cycle is dead. On the contrary, 33.3 percent of readers said that the cycle will return and a further 56.4 percent said that the cycle has merely flattened out for the immediate future. The remaining 11.1 percent said that it was too early to tell.

2019 could be an interesting year.

2019, survey, Bermuda:Re+ILS

Bermuda Re