“I think after two very challenging years in 2017 and 2018, from a natural catastrophe perspective, we may be reaching an inflection point in 2019, when it comes to capacity, rates, and terms and conditions.
In the insurance industry, we're very used to severe natural catastrophes, but there were some elements of the events over the last couple of years that, to a degree, caught the industry by surprise. By that, we're talking about in late last year, the severity of the California wildfires, which is a peril that's not overly well modeled by the modeling companies.
We had a combination of less than robust modeling data for the insurance companies to rely on, and then just an unprecedented level of severity for those California wildfires last year. The year before, with Hurricane Maria hitting Puerto Rico so hard, I don't think the cat models or those of us that are following the insurance industry ever really expected that level of business interruption. The complexity of those losses, and the fact that those reserves are proving inadequate, even a year-plus post the event, we've seen adverse reserve development from many players in the market on the primary and the reinsurance side. That's also had implications for alternative capacity. There's been some headlines about collateralized programs, where the collateral is not being released because of this problem with adverse development on losses that happened over a year ago. That's led some ILS fund managers, ILS investors to start thinking about how much capacity do I really want to put into insurance risk or insurance as an asset class. All of those factors coming together could have implications for the amount of capacity that's available on the reinsurance and the retro side.”
Senior Managing Director and Chief Rating Officer