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Captive-Trends 2018

Captive Insurance Issues and Trends 2018

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Willis Re Reports on One of the Worst Loss Years on Record

Hurricane from Space-SF
January 11, 2018

With recent catastrophe loss estimates in the region of $136 billion, 2017 is proving to be one of the worst loss years on record for the global re/insurance market, according to the latest 1st View renewals report from Willis Re.

Unfortunately for reinsurers, the 2017 catastrophe losses coincide with a time when profitability in non-catastrophe lines is constrained and prior-year reserve releases are slowing, according to the Willis Re report. At the same time, pricing corrections have not increased significantly because of the combination of strong reinsurance market capitalization and losses being split over a number of different events, as well as because a large tranche of the losses were retained in the primary market.

For buyers, the shape of the global reinsurance industry in 2017 was significantly different from previous years impacted by large catastrophe events. Traditional reinsurers have remained strongly regulated and capitalized, supplemented by insurance-linked securities (ILS) capacity, which has grown to $75 billion.

According to the report, the ILS market showed resilience in the wake of catastrophe losses during the second half of 2017. ILS comfortably weathered the first major test for a number of funds, as investors prepared to recapitalize funds and provide liquidity for trapped capital. Similarly, traditional reinsurers' third quarter 2017 results showed that, while the losses are clearly an earnings event, the impact on capital has been relatively muted with average capital impairments in the range of 5 percent to 7.5 percent.

Key findings from the report are shown below. 

    • Catastrophe losses have stopped a further downward movement in risk-adjusted rates for most markets and classes.

    • The continued supply of capital has helped curtail widespread increases in risk-adjusted rates on loss-free portfolios.

    • Pricing across global property catastrophe and risk programs is seeing average adjusted increases of 0 percent to 7.5 percent, with a few outliers at either side of this range.

    • Evolving cyber threats are a major concern for the industry in 2018. Recognition of silent cyber risk continues to grow in the market, with reinsurers trying to assess potential aggregation levels.

    • Merger and acquisition transaction volume in the global insurance sector finished 2017 on a par with 2016's $49 billion.

    • ILS investors have replenished their capital and continue to trade forward with modest spread increases for loss-affected perils.

James Kent, global CEO of Willis Re, said, "As society as a whole is starting to look more closely at the role the global reinsurance market can play in helping to close the economic loss gap, the stability of the market bodes well for its future development."

Download the full report. The Willis Re 1st View report is published three times per year and includes specific commentary on key trends throughout the world's major reinsurance classes and regions.

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