US rate increases to spread to Europe
Rate hardening in the US and the
Caribbean due to recent nat cat losses is
set to unwind past price reductions in Europe,
Jens-Ulrich Peter, Swiss Re head of property
underwriting, EMEA, told Baden-Baden Today.
Hurricanes Harvey, Irma and Maria together
with two earthquakes in Mexico caused insured
losses in the third quarter estimated to exceed
$100 billion, to become the costliest in history.
As a result, Bernstein analysts expect US
nat cat prices to increase by an average of 10
percent and US commercial property to go up
by an average of 5 percent.
“There should be some market hardening
for Caribbean and US exposed reinsurance
treaties, but it might be that some of the price
reductions we have seen in the EMEA markets
in recent years are unwound,” Peter said.
For European windstorm-exposed businesses,
prices have fallen by 40 percent since 2013, he
noted. The key driver for this price deterioration
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Buenos Aires Argentina
London United Kingdom
Mexico City Mexico
New Jersey USA
Santiago de Chile Chile
São Paulo Brazil
has been the globally benign nat cat activity
in recent years. “This has now dramatically
changed,” Peter said.
“While some of the other drivers are more
structural in nature, we can expect the cyclical
element to be unwound,” he explained.
Property prices are expected to improve,
particularly in the US primary and reinsurance
markets. The impact on non-US property
business is expected to be very much correlated
to the US price movements in the upcoming
renewals, Peter noted. Also, some wording
erosions and cover widenings seen in recent
years need to be unwound, he added.
Over the last years Swiss Re has consistently
said that in most markets, prices and terms
are unhealthy and need to return to more
sustainable levels. “The recent loss events
reinforce our position,” he added.
“At current pricing levels, the reinsurers’
normalised earnings do not pay much of a
premium over risk-free rates.”
Rates in the property re/insurance sector
had come under pressure in recent years,
partially because of the absence of large losses,
but also because a low interest environment
attracted capital to the re/insurance sector,
creating excess capital and a soft market.
Alternative capital in the catastropheexposed
property space has put some pressure on
traditional reinsurers, Peter said. Some of these
players have started to reduce their property
risk appetite and have redeployed their capacity
to other short tail lines such as marine, credit,
engineering and some other specialty lines, he
continued. As a result, these lines have also come
increasingly under price pressure in recent years.
“We expect that these cyclical impacts
will be unwound in the upcoming renewal
seasons because capacity will be redeployed by
these reinsurers at higher hurdle rates,” Peter