The “exceptional” run of natural catastrophes over the past 16 months may presage the return of a harder market, says
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Also roiling the market are newly updated catastrophe models in the U.S and an infusion of fresh equity as $1.2 billion in new capital has entered the market as some reinsurers start to position themselves for possible reinsurance rate hikes.
“Given all the variations in loss experience, model change, exposure change, structure change, capacity demand and geographical scope it is not easy to generalize about rate changes,” Willis Re Chairman Peter Hearn says, writing in the foreword of the report. “The reinsurance market as a whole has reacted reasonably logically with a differentiated approach driven on a case-by-case basis.”
The Willis Re report found that outside of natural catastrophe classes, this differentiation in approach is clear with “Property risk excess of loss pricing movements driven by individual experience and a continued softness in longer tail Casualty classes, notwithstanding concerns over inflation and stubbornly low interest rates.”
Regarding speculation in reinsurance circles of a harder market, Willis Re says that any event resulting in a further reduction of market capitalization will be the key to a market turn. The report analyzes some of the most likely triggers, including a major natural catastrophe, a series of medium-sized catastrophes or a financial downturn or contagion arising from European debt issues.
“The reinsurance market remains in a state of uncertainty regarding its short-term future direction, but what is clear is that any turn in the market pricing cycle is unlikely to follow historic patterns,” Hearn adds. “More sophisticated capital management techniques and greater transparency over profitable market niches are driving fragmentation of the cycle into territory-and class-specific cycles.”
