International property
In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 with regards to international property.
Key developments in 2018
A number of our predictions from a year ago came to pass. Renewals in 2018 saw modest rises in property and casualty rates, which were in large part reactive to the significant catastrophe losses of 2017 and demand from emerging markets. However, the rises were tempered by continuing excess capacity.
While 2017 will be remembered as one of the most active and dangerous Atlantic hurricane seasons of recent years, 2018 will be defined by the wildfires in California. The devastation wrought by these events means 2018 is likely to surpass 2017 as the most expensive year ever for wildfire losses. At the time of writing, insured damage from the Camp and Woolsey fires are estimated by RMS to be between $9bn and $13bn.
New and emerging technologies continue to be used in the investigation and adjustment of losses. Drones are now regularly being used to capture high-resolution images of the impact of catastrophic events. Satellite imaging has also been used to good effect throughout the wildfire season in conditions where drones are less effective due to poor visibility caused by smoke, ash and airspace flying restrictions.
In an era where record catastrophe losses are becoming the norm, it is no surprise that (re)insurers are exploring alternative ways in which to transfer or spread their risk through insurance-linked securities (ILS). As we anticipated last year, the catastrophe bond market expanded in 2018 with record issuances. The outstanding catastrophe bond market now sits at more than $30bn.
What to look out for in 2019
Further modest rate rises are generally anticipated, with continued corrective pricing and ongoing demand from emerging markets. The level of increase is likely to be nuanced across different markets and geographical areas.
The ILS marketplace in the UK, in particular, is expected to continue to grow in importance and scope. The speed with which ILS structures can be approved by regulators in the UK has been a concern. However, recent transactions by Brit and Scor illustrate the ability of UK regulators to grant approvals quickly, and thereby compete with other jurisdictions internationally such as Bermuda.
The focus for ILS to date has been on catastrophe bonds. These bonds represent the most liquid and the most easily approachable part of the market. However, the diversification opportunity of an ILS portfolio ought to drive innovation in allowing (re)insurers to spread other risk categories such as cyber by way of these securities. We expect to see this opportunity seized upon by ILS markets in 2019, but it waits to be seen which jurisdiction(s) will take the initiative.
(Re)insurers’ appetite for cyber risk in 2019 is expected to continue unabated. There has in recent years been a level of concern about cyber risks being inadvertently covered by property policies and not priced appropriately. However, property (re)insurers have invested in trying to better understand cyber exposures. For 2019 renewals we can expect to see tailored wordings that seek to address these inadvertent cyber exposures and/or more informed pricing of these “silent” risks.
Authored by Hugh Thomas.
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