Hurricanes Harvey, Irma and Maria, as well as the California wildfires, have had a significant effect on the mind-set of insurers, ending a prolonged period of market softening.
However, a high degree of uncertainty surrounds the market as we head into 2018.
Following the run of recent storms, quakes and wildfire losses, insurers have expressed a willingness to tackle what they see as rating inadequacy at a time of perceived increasing exposures.
Natural catastrophes are not the only perils putting pressure on exposures.
The Ogden rate
The change to the UK personal injury discount rate (the Ogden rate) has affected the casualty market, while uncertainty around cyber exposures and the ongoing threat from terrorism also play on the minds of underwriters.
Across all markets, the consistent theme has been a push for more realistic pricing of catastrophe risk and an end to discounts.
Certain insurance markets are already under pressure to respond and we see a number of insurers taking a more measured approach to the quality of risk.
An important dynamic that has yet to play out is the outcome of reinsurance treaty renewals in January and ahead of the 2018 hurricane season in June.
Reinsurance markets are displaying differing levels of appetite, with London and continental European reinsurers focused squarely on achieving rate increases.
Insurers are widely expected to pass any increased cost of reinsurance to customers, suggesting that changes in market conditions could well crystallise after the first quarter.
Underwriters are clearly determined, but the market’s response to recent natural catastrophe losses is not comparable with the hard markets that followed large losses in 2001 and 2005.
Those events depleted capital levels at a challenging time for the industry, following the liability crisis of the late 1990s and early 2000s.
Attracting capital to the insurance market
In contrast, the market faces losses from Hurricanes Harvey, Irma and Maria with strong balance sheets, bolstered by several years of benign natural catastrophes and significant surplus capital.
As a result, we continue to see a highly competitive market and one with continued excess capital.
The fundamental dynamics attracting capital to the insurance market, mainly the low interest rate environment, remain valid.
The theme going into 2018 is likely to be one of inconsistency across different classes of business, geographies and markets.
In an uncertain market, clients should seek to leverage long- standing relationships with insurers.
This is not the time to pull back from building partnerships.
Early engagement, the provision of quality up-to-date information on values and exposures, and a flexible approach to programme structures will also help mitigate changes in market conditions.
For further information, please contract Paul Knowles, CEO of JLT Specialty on +44 20 7528 4044 or email firstname.lastname@example.org