Financial Institutions Market Conditions
2017 looks as if it might be one of the most expensive years on record for insurers due to hurricanes Harvey, Irma and Maria (known as HIM). The total insured losses from these natural catastrophes are still being calculated, but they could exceed US$100 billion and this will almost certainly have a detrimental effect for some insurance buyers, especially those with large US property exposure. The obvious concern is whether this hardening of terms will spread to the financial institutions insurance market place?
We do not think this will happen and certainly not in the short term although we will be closely monitoring the reinsurance renewal season at the end of the year. Whilst the recent hurricane losses may well break records, market capacity is also at record breaking levels meaning that the majority of insurers should be able to absorb 2017 claims, eroding profit but not capital. In addition, the financial institutions insurance class is still profit making and does not correlate with the types of physical loss emanating from natural catastrophes.
It should be noted, however, that the insurance market is driven not only by financial results but also a high degree of sentiment. We have certainly observed at an underwriter level significant discomfort about the current rating levels and we believe that a minority of insurers may well attempt to drive the market up perhaps by refusing to offer terms without increased premium. This approach may well have limited success, particularly in certain sectors of less popular business, however, we believe that for the majority of cases alternative insurers will be able to replace this capacity, hence this strategy could ultimately fail.
With regard to conditions for 2018, we will be monitoring the reinsurance renewal season closely as this may well increase insurers cost base, but again any insurer seeking to pass this cost on will likely face stiff competition from other insurers keen to secure new business.
We do, however, expect that rate decreases will be increasingly harder to secure next year as a larger pool of insurers will be resisting discounts. This is not to say they will not be available, but alternative insurers may need to be used. In addition, there has always been a sector of ‘difficult to place’ business, including entities heavily exposed to misselling, third party administration and US jurisdiction, which may well expand and will at best maintain flat premiums.
Finally, we do expect 2018 to be a slightly tougher trading environment overall and are happy to discuss the advantages and disadvantages of multiyear placements (for which we have seen increased interest this year) and strategies to drive insurer competition.
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