Property cat pricing increases set to fade: JLT Re

Property cat rate increases from last year’s hurricanes will peter out ahead of the January renewals, according to a report released by JLT Re at the Monte Carlo Rendez-Vous.

However, the broker expects some areas of hardening in the casualty market, as reserve releases become unsustainable.

In addition, the potential for a rise in interest rates could lead to casualty claims inflation.

Ross Howard, JLT Re’s executive chairman, predicted casualty could become a problem for the market if interest rates rise, describing the outlook for pricing in the segment as "spotty".

“We all sit here at Monte Carlo and talk about cat and property, but really there’s a huge book of casualty business out there. There are a lot of different factors out there that may come home to roost,” he said.

Keith Harrison, CEO of UK and Europe at JLT Re, said the outlook was broadly positive for reinsurance buyers.

He added: “As our report shows, any future market turn is likely to come about only if capital withdraws, and no such development is likely in the short term.”

The report noted that where pricing has dampened most, in areas such as property cat, a key driver had been the speed and volume with which alternative capital has come in.

David Flandro, head of analytics at the reinsurance broker, told journalists at the Rendez-Vous: “I’ve never seen the capital markets reload that quick.”

JLT Re noted that $8.5bn of capital had flooded into the ILS market in H1 2018.

Much of this capacity has been deployed at low rates of return by historical standards, particularly in areas where ILS markets are most active, such as Florida.

Flandro added that relatively limited loss development from hurricanes Harvey, Irma and Maria was also suppressing rates. Harvey losses have increased by around 11 percent from estimates on landfall, while Maria costs have risen by 25 percent.

This compares to a 71 percent claims development from Hurricane Sandy in 2012.

He said Irma is likely to develop further, with losses increasing by 15 percent thus far.

“Loss development in the main has stabilised after 300 days, [but] Irma could be an exception to that,” Flandro explained.

Finally, on facilitisation in the London market and ongoing regulatory pressure, Michael Reynolds, global CEO of JLT Re, said: "I think when you get to a situation where there's nothing the facility brings to the market in terms of expertise, all it is, is just volume.

"I think when you get to that point, that sort of broker income does need to be questioned. JLT doesn’t do that kind of business."