Fitch: reinsurance cycle has turned but may be flatter

19-01-2018

According to a new report by Fitch Ratings, the reinsurance underwriting cycle may finally have turned, but price rises look modest, suggesting that the cycle may have become flatter.

The Fitch report, entitled Global Reinsurance: Significant Catastrophe Losses; Modest Rate Rises, said that as the rating forecast in the fourth quarter of 2017, rates for property catastrophe reinsurance increased at 1 January 2018, according to recent reports from brokers - the first rise since 2013. However, despite large catastrophe losses in 2017, the rate increases were modest.

In a statement on the report Fitch said: “We believe the growth of the alternative capital sector has altered reinsurance market dynamics, making capacity shortages less likely and the underwriting cycle potentially flatter. Insurance-linked security investors have already largely replenished most of the capital consumed by last year's catastrophe losses.

“Natural catastrophes caused economic losses in excess of $300 billion globally in 2017 and insured losses of around $130 billion, making 2017 one of the most costly years for the insurance sector on record. The insured losses had a relatively limited impact on most reinsurers' capital as they were well spread between insurers, reinsurers and capital markets, and we did not downgrade any reinsurers as a result. However, we moved XL and Axis to a Negative Outlook, reflecting a decline in capital adequacy, near-term sensitivity to adverse adjustments to loss estimates or additional loss events, and adverse underlying earnings trends.”

According to Fitch, January's renewals show double-digit rate increases on some US loss-affected reinsurance programmes but increases elsewhere were modest. In Europe, 2017 was a benign year for catastrophes so, despite US losses, reinsurers were unable to reverse much of the rate reduction from recent years.

Fitch concluded that its outlook for the reinsurance sector remains negative, reflecting continued pressure on earnings from competitive pricing, alternative capital and low investment yields. Combined ratios, normalised for an average level of reserve releases and catastrophe losses, have steadily deteriorated.

Fitch Ratings, Reinsurance, Catastrophe losses, January renewals, Global

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