Upward impact on pricing due to record losses in 2017 confirmed – but localised to cat

With an estimated $136bn in catastrophe (cat) insured losses, 2017 is set to go down in history as one of the worst loss years on record for the global insurance and reinsurance market.

While it fell short of the costliest cat year ever by $24bn – total losses are expected to reach $330bn, just shy of the $354bn seen in 2011 after the Tohoku earthquake in Japan heavily impacted losses – 2017 will still prove to be the costliest year on record for the industry, with the highest level of insured losses.

With the 2017 cat losses falling largely on the shoulders of Harvey, Irma and Maria (HIM) in Q3, Munich Re chairman of the reinsurance committee Torsten Jeworrek said: “A key point is that some of the catastrophic events, such as the series of three extremely damaging hurricanes, or the very severe flooding in South Asia after extraordinarily heavy monsoon rains, are giving us a foretaste of what is to come. Because even though individual events cannot be directly traced to climate change, our experts expect such extreme weather to occur more often in future.”

According to Munich Re, the US share of losses in 2017 was significantly larger than usual at 50%, compared to the long-term average of 32%. When considering North America as a whole, the share rose to 83%.

There was much talk in Q4 of 2017 about the impact this would have on pricing, and Willis Towers Watson (WTW) recently confirmed that “pricing across global property catastrophe and risk programs is seeing average adjusted increases of 0% to +7.5% with a few outliers either side of this range”.

This may prove a somewhat bitter pill for the reinsurance industry, as despite the losses coinciding with constrained profitability in non-cat lines and a slowing of releasing reserves, the price increases were far from widespread.

Willis Re global chief executive James Kent explained: “Historically, such a combination of factors would have led to a widespread upward spike in pricing as witnessed in 2001 and to a lesser extent in 2005 and 2011. The fact that today’s pricing corrections have been generally orderly seems to vindicate previous observations about secular rather than cyclical forces at play.”

Kent added that the losses being split over a number of different events would have been a factor, along with the fact that “a large tranche of the losses were retained in the primary market”.