Hoare warns ofimpending "reinsurance failures"
11 October 2017
The CUO of Munich Re Syndicate Limited, Dominick Hoare, has has given a stark warning to expect "reinsurance failures" as the industry confronts a rising tide of over a $100bn in storm losses from hurricanes Harvey, Irma and Maria.
Mr Hoare said: “Looking at the recent storms and Lloyd’s data, I see that re/insurers are now facing a very changed market.
“The combination of market opinion and modelling agencies are suggesting that global market will suffer an aggregate insured loss of between $100 billion and $125 billion over recent hurricane events. This compares to an unindexed insured loss of $41 billion for Katrina in 2005. The losses of 2005 heralded a market change.”
He added that this estimated insured loss by the market “will be a capital event for many re/insurers”.
Mr Hoare added: “I believe the recent events will certainly have material implications on the re/insurance markets”.
“A $6 billion combined hurricane loss for Lloyd’s will deliver a significant market loss for the 2017 year, with a possible full year combined ratio for the market c.125%,” he added. “This is a significant capital event for Lloyd’s, and impacted syndicates will have to replace this capital deficit by 1.12.17 in order to ‘come into line’ for the 2018 underwriting year. This will be very challenging for many syndicates.”
He said that those outside of Lloyd’s will face similar challenges and predicted, “there will be a material number of re/insurer failures, and in addition to many re/insurers will have to retract their underwriting due to capital constraints”.
Coupled with the fact that prior year reserve releases are running out it makes the fragile state of the reinsurance market before the losses even more precarious.
Lloyd’s H1 reserve releases were only £190m (2016 H1 £600m). Even before the hurricane losses the global (re)insurance market was very fragile.
In terms of non-traditional capital (which underpins the US reinsurance/retrocession market) Mr Hoare said it has been “severely impacted”.
“Much of this capital has been destroyed or ‘trapped’ under their collateral arrangements. This capital will only ‘reload’ if modelled returns increase significantly, this will involve very material increase in rate. Furthermore, there is huge divergence amongst the modelling companies regarding the quantum of loss. Such model frailties will lead to capital requiring additional margin to cope with this uncertainty.”
Mr Hoare concluded: “The worldwide re/insurer market is effectively underpinned by a single interconnected (and now significantly diminished) capital base. As impacted lines see significant adjustment in rates, the effect will lead to all lines of business (both US and international) to secure their capital requirements to continue trading. In short order, this will certainly have tremendous implications on the insurance/reinsurance markets in terms of prices and conditions, but also in many other parts of the world (though not to the same extent).” re