Thursday, June 2, 2016

Insurance: Record Hurricane Activity Will Be Required To Raise Property/Casualty Premium Prices This Year--Fitch

Day 2 of the new hurricane season and we're looking at a moderately higher probability of landfalling 'canes than we did the last few years.
Here's Artemis:

Record hurricane activity required in 2016 to hike P/C prices: Fitch
A substantial hurricane or a record level of hurricane activity in 2016 is required to drive any meaningful price increase in the pressured, and competitive U.S. property/casualty (P/C) space, according to Fitch Ratings. 
Rates in the U.S. P/C sector have been deteriorating for some time now, owing to a host of market factors including the benign large loss landscape, and ample capacity from traditional and alternative reinsurance capital providers. 
Owing to third-party investor-backed reinsurance capacity from the capital markets still largely being focused on U.S. property risks, in part due to ease of entry and greater understanding of exposures when compared with other business lines, the most severe rate compression has occurred in this sector. 
“Given the current substantial level of industry capitalization, it would likely take a record individual storm loss or a series of significant losses equal to 15% or more of industry aggregate surplus for consideration of a P/C sector outlook movement to negative tied to catastrophe experience,” says global financial services ratings agency, Fitch Ratings in a new report. 
Furthermore, Fitch stresses that owing to the abundance of capital in the market any future positive rate movements as a result of a large-scale catastrophe event might not be the same as in previous pricing cycles, owing to the substantial volume of capital available in the primary and reinsurance property sector. 
This notion has been discussed previously by industry experts and analysts that have predicted future pricing cycles to be flatter than those of years gone by, as the wealth of capital from re/insurers, and increasingly the capital markets, could depress any peaks and troughs.While pricing in the sector continues to decline, there has been a noted deceleration in both rate reductions and the inflow of alternative reinsurance capital in more recent times. 
This rate reduction deceleration trend is expected to continue, with analysts at Morgan Stanley recently predicting that on average, pricing at the key June 1st reinsurance renewal season is expected to decline by 3% to 5%. With some also suggesting that rate decline deceleration for consecutive renewals could signal some much-needed stabilisation, perhaps suggesting rates may finally be reaching a floor. 
Despite continued rate reduction deceleration, Fitch feels that a record single hurricane event, or a record year for hurricane activity is needed in 2016 in order for positive rate movement in the U.S. insurance and reinsurance property industry. 
A view that’s been shared by other industry analysts, with recent reports claiming that a $150 billion to $200 billion event is likely required to drive a shift in the current softening re/insurance landscape.....MORE