HIM losses an earnings event for reinsurers
Despite losses from the recent hurricanes
“The industry, on an
aggregate basis, is very wellcapitalised,
with very low
underwriting leverage. This
leads to the fierce competition
and fairly low premium
growth in recent years.
“Among the other
competitive forces are
diminishing reserve releases,
low investment yields and
outsized catastrophe losses.
The cat losses in the first half
of 2017 were exceptionally
large, especially in the personal
lines segment. The HIM losses will only further
Some improvements are emerging, however.
According to Andre, personal auto business, which
had been challenged in recent years by increases in
the frequency and severity of claims compounded
by rising repair costs, has shown some improvement.
Rates have increased, leading to a strong
growth in direct premiums written for auto
liability and auto physical damage.
Pricing competition remains intense in most
commercial lines with very little top-line growth
over the past few years. In commercial auto, rate
increases have accelerated but adverse reserve
In workers’ compensation, AM Best has
noticed slowing premium growth but reserve
development remains favourable and calendar
year direct loss ratios are still improving. n
Trump healthcare executive order of limited impact to insurers
For insurers, the effect of the US healthcare
executive order signed by president Donald
Trump is likely to be limited, according to
research provider CreditSights.
Trump signed an executive order that could
result in large-scale changes to the health insurance
landscape, said CreditSights in an analyst note. The
order issues a broad directive to federal agencies
to explore regulatory options to expand access
to health insurance policies falling outside the
requirements of the Affordable Care Act (ACA).
The executive order could pave the way
for cheaper, more loosely regulated insurance
policies, further destabilising the individual
exchange marketplace. Trump is also said to be
weighing the enforcement of the requirement
that all individuals obtain insurance, as well as
cost-sharing subsidies to insurers.
Among key objectives of the executive order
are allowing for the sale of lower cost, less
comprehensive health plans across state lines;
allowing small businesses to group together to
buy health insurance; lifting limits on the sale
of short-term insurance policies; and expanding
the ways for consumers to use employer-funded
accounts to purchase insurance.
The effect on insurers is rather neutral and
possibly even positive, CreditSights analysts
concluded. For the most part, the large insurers
have already limited their exposure to the
exchange marketplace and the executive order
could provide another source of revenues,
according to the analyst note. n
set to exceed $100 billion, AM Best still
expects the losses to have only a limited impact
on the sector’s capital, making this an earnings
event more than a capital event for the overall
US property/casualty industry.
That is according to John Andre, managing
director, property/casualty ratings, who told PCI
Today that AM Best has conducted a number of
scenario tests to determine the impact of the losses.
“AM Best expects a loss of about $30 billion to
its rated composite of the world’s largest reinsurers.
The ultimate impact of the industry loss will
depend on, among other factors, cedants’ retention
levels, as well as the amount of losses absorbed by
the capital and collateralised markets,” he said.
For rated reinsurers, the aggregation of
these three hurricane events could be both
an earnings event and a very minor capital
event that would be well inside management
expectations. However, those insurers with large
market share and reinsurers that have historically
specialised in property-catastrophe reinsurance
or are more US-centric are more likely to be
disproportionately impacted, he noted.
He stressed that AM Best does not expect a
significant number of rating actions to result solely
from these hurricane events, but could view these
events as a market mover for reinsurance pricing and
for certain classes of insurance business in the US.
For primary insurers, AM Best will be looking
at how reinsurance programmes respond. This is
particularly true for local companies conducting
business in the Caribbean and Florida, which
rely heavily on reinsurance.
Ultimately, cash calls and
liquidity will play an important
role as rebuilding efforts begin.
Although the aftermath of
Hurricane Irma may be
bleak for some regional and
local carriers, particularly
overexposed companies with
earnings and potential capital
concerns, AM Best believes
opportunities may emerge for
others, Andre noted.
He added that it was still
too early to assess losses on
some lines of business and that the overall losses
could impact pricing in the market.
“The industry still needs to get its arms around
the weather losses from hurricanes Harvey, Irma
and Maria (HIM), including business interruption
losses, which are often difficult to completely
determine. AM Best will be looking to see if there
is any corresponding price hardening, however
brief, for both insurers and reinsurers.
“Outside of the HIM losses, we will carefully
observe the improving trends in other lines such
as private passenger auto liability, commercial
auto and workers’ compensation.”
He stressed that the property/casualty market
remains challenging for re/insurers across the board
and will remain this way for the immediate future.
“The market has been very competitive for
years and that is not changing in the current
market environment,” Andre said.
6 | PCI TODAY | DAY 2: Monday October 16 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com