Latin America braces for upcoming renewal
Latin America’s Miami-based reinsurers are approaching the upcoming renewals with a desire to further push up pricing to better reflect what they now regard as their true exposure to 2017’s natural catastrophe losses.
While the initial shock of Hurricane Maria’s widespread impact on Puerto Rico had subsided by the time last year’s renewal arrived, there was still some uncertainty regarding the ultimate magnitude of the industry’s exposure.
“At that first renewal after the losses, there were expectations of drastic changes in rates that didn’t materialise, but there was an upward trend. We wanted 20 percent rate increases, but they were more single digits, but for the first time in five years or so there were increases in risk-adjusted rates,” explained one senior Latin American (re)insurance executive.
Although catastrophe activity was limited in 2018, the year was still a painful one for Latin America’s reinsurers because of further development on 2017 losses, the source said.
Many of the leading figures in the Latin American market have been in Miami over the past two weeks discussing the upcoming renewal.
Reported losses from insurers on the ground in Puerto Rico to their reinsurers continued to increase once the 2018 renewals had been completed. Indeed, one Latin American reinsurance industry source said loss creep from Hurricane Maria had been as much as 40 percent in some instances.
Revised loss notices for Hurricane Maria are now few and far between, but heading into the renewal, Latin America’s reinsurers are preparing to factor in the increased 2017 losses into their terms and conditions.
“Rates have gone up across the market, and there are moderate increases being talked about. And then there’s Puerto Rico and the Caribbean where there’s a lot of soul searching,” said one reinsurance broker, noting that more substantial rises were expected for those markets that had been hit hard by 2017’s storms.
There is still considerable over-capacity, however, and that continues to affect pricing, the broker said.
At the same time, there is an acceptance that the price increases demanded of Puerto Rico’s insurers can only go so far.
“What is the payback from somewhere like Puerto Rico? It’s very limited,” one leading Latin American reinsurance figure told this publication.
Regardless, there is an acceptance that Puerto Rico’s insurers will face pricing increases, with one reinsurer stating that clients in the US territory “will be hit hard”.
Treaty clients that have suffered losses will be subject to price increases, one reinsurance executive highlighted, and those that have seen their loss notifications increase will face even greater rises.
Loss-free accounts hoping for reductions are likely to be left disappointed, however.
“Elsewhere will be as expiring,” the source said, adding: “I don’t see room for people to give more improvements. It’s pretty poorly priced and rated at the moment, so we can’t give more to clients.”
There will also be significant increases in Latin America’s facultative market, and not only because of the recent loss activity.
“Fac prices will go up and conditions should improve for reinsurers just because Lloyd’s is withdrawing capacity from the D&F [direct and facultative] market,” the reinsurance executive explained.
Last August, Hiscox pulled its Miami-based property D&F team, with the company highlighting the lack of rating improvement in the aftermath of 2017’s natural disasters being partly behind its decision, as well as various local market dynamics.
The wider Lloyd’s market has also seen a withdrawal of capacity from the property D&F market, with Travelers and Markel International among those pulling out.
“Property D&F had a big over-capacity,” said one Miami-based source. “Companies were under a bit of stress and Lloyd’s is looking at that segment. The market is quoting rate increases and if they aren’t getting them, they have been walking away.”
It is hard to put exact figures on the magnitude of these increases as each client’s experience has been different. Those insurers that went through the top of their reinsurance programmes can obviously expect substantial price rises, while others will face more modest rises at renewal.
As one market source highlighted, reinsurers are paying closer attention to their accumulations, and consequently the availability of capacity for some poorer performing risks could be limited.