Reinsurers’ earnings are likely to see further erosion in 2019 after another year of major catastrophe losses, which is prolonging the positive momentum for reinsurance pricing, according to AM Best.
“Three consecutive years of severe losses, dwindling favorable reserve development out of prior accident years, and a prolonged low interest rate environment add up to a continued erosion of earnings…,” said the AM Best commentary titled, “2019 CATs Expected to Once Again Dent Reinsurance Earnings.”
Major natural catastrophes such as Hurricane Dorian in the Caribbean and United States and Typhoons Faxai and Hagibis in Japan likely will have a meaningful impact on the profitability of and pricing conditions for global reinsurers and retrocession players, said the report.
AM Best noted that Hurricane Dorian is estimated to cost the industry at the high end of the US$6 billion to US$9 billion range. Typhoon Faxai’s insured losses are estimated at $5 billion to $9 billion, while Typhoon Hagibis’ losses could top $10 billion, AM Best said.
Lessons from Typhoon Jebi
The loss creep from last year’s Typhoon Jebi into 2019 has been a learning curve for many market participants, said the report, explaining that re/insurers “seemed to have underestimated the hurdles involved in notifying, assessing and reporting this type of loss, which left them to deal with material adverse reserve development several months after the event.”…