International property

In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 with regards to international property.

Key developments in 2017

The predictions we made last year of the Atlantic hurricane season in 2017 being one of the most active and dangerous for more than a decade came to pass. This year international property was defined by hurricanes Harvey, Irma, and Maria (HIM), which have an estimated combined cost of over $100bn in damage. Further losses also arose from the Mexican earthquakes, wildfires in California and Montana, and serious flooding in India, Nepal and Bangladesh.

The size of the losses this year, particularly HIM, has had a particularly large impact on reinsurance and retrocession layers. Further, holders of catastrophe bonds, which have seen growth in recent years, have also felt the impact of this wide-scale loss. This has added further pressure on underwriters, claims handlers,and loss adjustors, particularly through the second half of the year.

However, HIM has also provided opportunities for the use of new technology to help those working in the insurance industry. Due to the potential size of losses, insurers have been more willing to embrace insurtech, with the use of drones and satellite imaging technology to calculate and examine losses. The impact of quickly resolving losses and freeing up capital cannot be underestimated, as it affects everything from stamp size to hiring ability.

Finally, the relative weakness in the pound has proven costly this year for UK-based insurers and reinsurers,particularly as it hit its lowest point against the dollar during the Atlantic hurricane season. This only further added to the burden of costs for those (re)insurers during this tumultuous year.

What to look out for in 2018

Many have predicted that January renewals will bring with them some hardening of rates. Although (at the time of writing) the extent of any rate rises is unclear, the picture will undoubtedly differ across lines of business and markets/geographical areas.

The prospect of rate rises brings the prospect of additional capital for new investments. This coincides with the rise of insurtech. In addition to the increase in new technologies in the claims handling and adjustment process, such as drones, satellite imaging and 3D scanners, we will also see an increase in the use of sensor technology to monitor risks, and investment into data analytics to use data for writing better risks and creating new products.

The catastrophe bond market will expand in 2018. Coupon rates will increase, particularly for riskier cat bonds. This may attract further interest for new investors. As the UK and Singapore attempt to finalise their insurance-linked securities (ILS) regime (which will allow for the creation of cat bonds), a rise in issuances can be expected in 2018. This rise, and the aftermath of HIM, will lead to new litigation for cat bond claims(and other ILS) and establish a body of law to underpin the products.

Finally, the growing cyber threat creates opportunities for products in the terrorism and crisis management markets. 2017 saw various illustrations as to how ransomware, for example, can impact a business in the absence of property damage. The demand for more nuanced products that respond to these risks will invariably grow as a result.