Commercial property insurers are pursuing double-digit rate hikes in the wake of 2017’s historic natural catastrophes and the $143 billion in global estimated insured losses they caused. But reinsurance and alternative capital options both have helped mute wider market firming, according to Willis Towers Watson’s latest Marketplace Realities report.

Carriers dealing with catastrophe-exposed properties with losses are facing rate hikes between 20 percent and 25 percent, the report noted. Rates also are going up between 10 percent and 20 percent for catastrophe-exposed programs that did not sustain losses.

Non-catastrophe-exposed programs are seeing the most moderate renewal price changes, with rates between static and 5 percent higher.

Heavy Reinsurance, ILS Capital Helped Insurers Safely Absorb Cat Losses

Willis Towers Watson calculates $143 billion in estimated insured losses from 2017’s global natural catastrophes, topping the $120 billion generated in 2011. But strong capitalization for reinsurers and both alternative capital sources has helped the industry absorb those losses without major harm to their balance sheets, the report noted.

Jan. 1 treaty renewals for global reinsurers came in with increases of 5 percent to 7 percent, even though many in the market expected higher rate hikes. Willis Towers Watson said this showed that global reinsurers “feel compelled to increase profitability” but that too much capital in the market will limit this. The report doesn’t minimize the impact of the recent catastrophe losses but pointed out that their harm to the supply of capital “has been relatively muted.”

ILS Investors Seek More Risk

Alternative capital such as insurance-linked securities has provided reinsurers with fierce competition, and the business faced its first major loss event over the 2017 natural catastrophes that struck late last year. Willis Towers Watson said that ILS options “showed resilience in the face of their first major loss test and have even exhibited a growing appetite for risk taking and increased market share.”

What’s more, the surge in reinsurance capital and heavy competition from alternative sources of capital should prevent reinsurance rates from rising significantly any time soon, Willis Towers Watson said.

Source: Willis Towers Watson’s Market Place Realities 2018 Property Update