CEOs: Rate Increases Won’t Off-Set Losses
Investment yields, low interest rates, less-favorable reserves and high catastrophe losses are working together to create a market hardening, according to Bermuda reinsurance and specialty-insurance executives.
However, rate increases are not enough to offset losses, according to a report in re/insurance journal “Property Casualty 360″ today [Nov.2]
“Broadly speaking, nearly every line of business is now showing either flat or positive rate change for the second straight quarter,” says Michael S. McGavick, CEO at XL Group.
Mr. McGavick says he is not prepared to call it a hard market, but “clearly, managements in our industry are becoming frustrated by reality –t he reality that we are in a prolonged low interest-rate environment; the reality that for some companies, reserves are running dry; the reality that the sector has been underpricing most of these products for an extended period of time.”
Asked if he thought rate increases would offset losses, Mr. McGavick said no.
“We are seeing positive movement in rate without question, but we are not seeing it to the level that will be necessary, both to offset the losses that are seen across investment yield or even the loss trend,” he says. “Neither we nor the market are where we think it needs to be.”
Costas Miranthis, president and chief executive of Bermuda’s PartnerRe, said there is “a clear recognition that rates should rise” as implications of lower interest rates are understood and recent catastrophes has “lead to greater respect for risk.”
Mr. Miranthas says insurance conditions are “slowly” beginning to improve in the United States and internationally, but “perhaps the US is slightly ahead of this trend …
“Reinsurance demand, particularly for peak exposures, remains strong. While there is no capital crunch, I believe capital will be deployed only if the risk-adjusted returns are appropriate.”
RenaissanceRe Holdings CEO Neill A. Currie said catastrophes this year have consumed a lot of reinsurance capital, which could create “some opportunity to increase price,” though, to date, increases are limited to areas that have experienced losses.
Alterra Capital CEO Marty Becker said he thinks the company is in a good position to “take advantage of what appears to be more favorable market opportunities” as the January 1 renewal season approaches.
Last month ACE CEO Evan Greenberg said September was the best month for pricing this year, adding that “pricing overall continues to firm” as “more classes achieve positive rate while rate decreases were smaller.”
