Reinsurance Market Briefing Rendez - Vous de Septembre, Monte Carlo Greg Carter Managing Director, Analytics – EMEA & Asia Pacific Robert DeRose Senior Director, Global Reinsurance Ratings Nick Charteris - Black Managing Director, Market Development - EMEA 8 September 2019 Carlos Wong - Fupuy Senior Director
43
Embed
Reinsurance Market Briefing - AM Best · ReinsuranceMarket Briefing Rendez-Vous de Septembre, Monte Carlo ... • Common board and senior management working across both offices to
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Reinsurance Market Briefing
Rendez-Vous de Septembre, Monte Carlo
Greg CarterManaging Director,Analytics –EMEA & Asia Pacific
Robert DeRoseSenior Director,Global Reinsurance Ratings
Nick Charteris-BlackManaging Director,Market Development - EMEA
8 September 2019
Carlos Wong-FupuySenior Director
AM Best Delegates 2019
2
Preparing for Brexit
3
Preparing for Brexit... AM Best• AM Best Rating Services B.V. (AMB-EU) based in Amsterdam was registered with
ESMA on 3 December 2018
• Office is now fully staffed and operational
• EU27 clients migrated from London via a contractual novation process and analytical handover as required
• London will remain as the EMEA hub office, providing certain non analytical services to the Amsterdam office
• Common board and senior management working across both offices to ensure consistency and continuity
• AMBERS’ existing registration will convert to a new UK CRA registration with the UK FCA from Brexit date
• Both ESMA and the FCA have endorsement regimes in place even in a hard Brexit scenario to ensure mutual recognition of ratings for regulatory purposes
US Securities Laws explicitly prohibit the issuance or maintenance of a credit rating where a person involvedin the sales or marketing of a product or service of the CRA also participates in determining or monitoring thecredit rating, or developing or approving procedures or methodologies used for determining the credit rating.
No part of this presentation amounts to sales / marketing activity and AM Best’s Rating Divisionemployees are prohibited from participating in commercial discussions.
Any queries of a commercial nature should be directed to AM Best’s Market Development function.
Discussion Outline
7
Outlook
Capital
Developments
Performance
Global Reinsurance Market
Global Reinsurance Market Outlook
8
Headwinds TailwindsIntense competition Increasing alignment between traditional
and third-party capitalExcess capacity limits the potential forimprovement
Improving pricing discipline for property cat and retro in particular
Potential for increased inflation Accelerating pricing momentum at the primary insurance level
Less cushion in carried loss reserves US economic growth slows, but continues
Continued interest from third-party capital, even beyond prop-cat lines
Use of third-party capital in retrocession programs reducing earnings volatility
December 2018 – AM Best revised the outlook on the Global Reinsurance sector to Stable
9-Jan-15 XL Group Catlin Group Limited 4,100 1.27x3-Aug-15 EXOR PartnerRe 6,900 1.19x5-Oct-16 Sompo Endurance 6,304 1.36x6-Jul-17 AXIS Novae 604 1.50x
26Notes:1996 to Present. Excludes accumulated other comprehensive income.Sources: AM Best data and research, Bloomberg, company reports and accounts
Announced Acquirer Acquiree Price (USD mm)
Tangible Price to BV
22-Jan-18 AIG Validus 5,560 1.53x4-Mar-18 AXA XL Group 15,300 1.96x
28-Aug-18 Apollo Aspen 2,600 1.08x31-Aug-18 Markel Nephila 975 –30-Oct-18 RenRe Tokio Millennium 1,469 1.02x
Global Reinsurance MarketDevelopments
Reinsurance Rates – Response to Influx of Alternative Capital
28Source: Guy Carpenter
Supply and Demand
Reinsurance rates in the Florida property cat market dropped in response to an influx of alternative capital
Catastrophe Losses do have Reserve Tails (1)
29
Hurricane Irma (2017) loss creep surprised both reinsurers and ILS funds exceeding USD 1 billion
Impact of development based on Florida footprint
Demand surge stressed claim adjustment process
Assignment of Benefits (AOB) resulted in higher loss cost
AOB lawsuits increased from 1,300 in 2000 to 135,000 in 2018
Catastrophe Losses do have Reserve Tails (2)
30
Hurricane Maria (2017) presented unique challenges due to scope of devastation
Limited local claim resources required adjusters from US to assist
Unfamiliarity with policy terms/conditions resulted in higher number of reopen claims and resulting loss
Prolonged settlement and usability exacerbated Contingent Business Interruption claims
Catastrophe Losses do have Reserve Tails (3)
31
Typhoon Jebi (2018) current loss estimates up to USD 16 billion vs original estimate of USD 2 - 3 billion. Some firm’s current loss pick of USD 8 - 10 billion
Japan fiscal year ends in March
Overlap with Typhoon Trami and a series of smaller losses, complicated claim and loss estimates
Preparation of Olympics stressed reconstruction resources driving up claims costs
Global Reinsurance - Market Developments
32
2017 Reinsurance Market Briefing, Monte Carlo10 September 2017
05
1015202530354045
1980-1989 1990-1999 2000-2009 2010-2018
USD
bill
ions
Losses Losses 2016 Losses 2017 Losses 2018
Wildfire Insured Losses Since 1980(USD billion at 2018 Prices)
2018
2017
20162010-2015
Source: Swiss Re Institute sigma
Possible Turn in Trajectory
Capital elasticity has flattened the reinsurance market cycle
USD 219 billion in Cat losses over a
24 month period ending
December 2018
Capacity crunch in
retrocession markets
Earnings under
pressure Increased
demand for reinsurance
33
Continued Market Uncertainty
MARKET UNCERTAINTY
Upward rate
pressure
Trapped Collateral
Loss Uncertainty
Loss creep from hurricanes and wildfire uncertainty
New capacity being held on the sidelines
Aggregation of losses across ILS fund sector
34
What has transpired
Predominately European renewals
that were less affected by the 2017
and 2018 CATs
Rates did increase 30% for loss affected
programs(Lloyd’s and US)
Supply and Demand imbalance lead to
retro pricing increases of
15-20%
Casualty programs saw modest rate
improvement with ceding commissions
flat to down
Overall renewal pricing – flat to up
January and June renewal negotiationsran late
35
What to Expect?
Capital markets continue to be the key to sustained rate increases at the mid-year renewals
An abundance of capital waiting on the sideline
The evolving interest rate environment is a new variable within the pricing equation
36
Market Momentum - AIG
37
Recruiting proven talent to change culture from the top
Aggressive underwriting actions:• Pricing • Reducing both gross and net limits • Exit underperforming risks• Increasing utilisation of reinsurance to reduce
earnings volatility
Market Momentum – Lloyd’s
38
Address underperformance and
irrational underwriting behaviour
Implementation of risk-based oversight for
underwriting performance
Limited capacity for worst performing syndicates
Annual planreviews
Performance Management
Directive(PMD)
Market Momentum – June 2019 Renewal Comments
39
Travelers CEO Alan Schnitzer: “In business insurance, we achieved renewal premium change of 6.7%, including renewal rate change of 3.6% in both cases the highest levels in five years”
Chubb CEO Evan Greenberg: “Pricing continuing to tighten while spreading to more classes and business segments, particularly in the US and London wholesale market. Also seeing early signs of market firming spreading to more territories around the world”
Market Momentum – June 2019 Renewal Comments
40
Munich Re Torsten Jeworrek: “We see potential for profitable growth in traditional areas of business. There are opportunities to write profitable business in the current market environment”
Everest Re CEO Dominic Addesso: “We continue to see positive momentum across the underwriting operations, with profitable growth opportunities materializing for both our insurance and reinsurance segments”
Global Reinsurance - Market Trends
41
Potential Opportunities
Cyber Flood Mortgage Terrorism InsurTech
Global Reinsurance Market Outlook
42
Headwinds TailwindsIntense competition Increasing alignment between traditional
and third-party capitalExcess capacity limits the potential forimprovement
Improving pricing discipline for property cat and retro in particular
Potential for increased inflation Accelerating pricing momentum at the primary insurance level
Less cushion in carried loss reserves US economic growth slows, but continues
Continued interest from third-party capital, even beyond prop-cat lines
Use of third-party capital in retrocession programs reducing earnings volatility
December 2018 – AM Best revised the outlook on the Global Reinsurance sector to Stable