Analysts Expecting a Short-Term Hard Market for Property Risks

October 2, 2017

Damage left by Hurricanes Irma and Harvey will lead to a hardened property market and pricing correction, at least in the short-term according to a new KPMG survey.

In related analysis, a new Morgan Stanley report downplayed initial concerns that insurers and reinsurers will need to raise capital due to Harvey/Irma-related losses.

Approximately 44 percent of KPMG respondents expected a short-term hardening of the property market due to Harvey and Irma, a trend that will include reduced supply and higher premiums. Also, 47 percent of respondents said they expect a short-term correction in primary insurance pricing with a continued soft market to follow.

KPMG surveyed 300 senior insurance executives.

Before the soft market returns, however, insurers will face hurricane related risks as their insured losses work their way through the system, KPMG said. The top three hurricane-related risks will be stream of capital flow, lack of available future reinsurance coverage and lack of claim handling personnel.

Insurers are also facing continued challenges due to Irma and Harvey. Two of the top ones: challenges in assessing property damage and managing customer expectations and awareness of coverage. KPMG said insurers are boosting claims efficiency by using drones and social media to help customers quickly settle claims.

Morgan Stanley, meanwhile, said it sees a low risk of the need to raise post-hurricane capital among the insurers and reinsurers it covers, at least for now. The firm’s Sept. 14 report, addressing the investor questions related to Irma, concludes that “the industry should be able to absorb” combined Harvey and Irma losses up to a certain amount.

There are caveats, however. Morgan Stanley said that some of its reinsurers may end up having to raise capital if Irma losses reach $100 billion or more. XL Catlin, AXIS Capital Holdings and ReinaissanceRe are among those most vulnerable, Morgan Stanley said.

In terms of pricing, Morgan Stanley predicted flat Jan. 1, 2018, renewals based on early indications from the recent reinsurance gathering in Monte Carlo.