MILLI REASURANS ANNUAL REPORT 2018

Milli Re Annual Report 2018 58 / Financial Status Moreover, the trend of increasing retentions witnessed in the recent years came to an end as many primary market players sought higher reinsurance protection as a result of increased loss activity. 2019 was a challenging year in terms of retrocession renewals. Global market losses of 2018 in addition to the aggravation of 2017 nat cat loss estimates created ambiguity surrounding the available capacity that resulted in late renewals. In contrast to the softening observed in the reinsurance market, double digit rate increases were prominent across loss-impacted retrocession programmes. As some of the capacity from collateralised markets was tied up in the aftermath of 2018 losses, some buyers faced difficulties like higher prices and tighter terms and conditions, especially later in the renewal season. Nonetheless, the gap between retrocession and reinsurance pricing widened even further compared to the previous years and remained to be a major challenge for the industry. Europe With the exception of Friederike storm affecting mainly first layers of some cat programmes, Europe experienced a benign year during 2018 in terms of natural catastrophe losses. While Europe-wide loss free cat programmes experienced up to 5% price reductions, undercutting of prices reached 7.5% for Central and Eastern Europe loss free programmes. No major price movements were observed in loss impacted cat programmes. On the other hand, as far as risk programmes are concerned, loss impacted Europe-wide programmes experienced up to 10% price increases, while upward adjustments were capped at a maximum of 7.5% for Central and Eastern Europe loss hit risk programmes. Europe- wide loss free risk programmes renewed with up to 5% rate reductions, while prices fell by 2.5% to 6% for Central and Eastern Europe. North America As a consequence of devastating wildfire events which swept through California for the last two years, 2019 renewal discussions were shaped around wildfire peril in the US cat market. Given the high level of losses recorded, many reinsurers shifted their focus to wildfire which has previously been assessed as a secondary peril. For loss affected cat programmes, substantial risk-adjusted price increases going up to 20% were observed, while maximum upward price movement was 10% for risk programmes. Loss free risk programmes renewed at stable to down 2.5%, whereas a wider range was observed for cat programmes, with price changes between -2.5% to 5%. After a calm year, in 2018, Canada property business was mainly impacted by frequency of wildfire and wind events across western parts of the country, with limited losses observed in the lower layers of programmes. Therefore, risk-adjusted rate increases between 5% and 10% were inevitable for loss hit cat programmes; whereas loss free cat programmes experienced up to 2.5% rate decreases. Risk programme rates were stable to 5% up for loss-free programmes, while loss impacted programmes saw 5% to 10% price increases. Asia / Oceania 2018 has been a very challenging year for all players in the region. Nevertheless, the region is still the global insurance growth engine for the foreseeable future. It is home to some of the largest economies in the world and with strong emerging economies. With wealth and financial sophistication increasing, accelerating increase in purchasing power and appetite are expected to follow. Furthermore, with governmental support providing the impetus for economic development, the region’s financial and insurance markets will continue to be the right place for global players. In 2018, losses emanating from natural disasters showed a substantial increase in comparison to the last year’s loss record. The West Pacific basin saw 27 named storms, of which 14 were typhoons and 7 were super typhoons. Japan saw unprecedented wind and flood events. This started early in June with flooding from heavy rainfall affecting lower layers of Cat excess of loss programmes and some aggregate covers. This was followed by the recored-setting Typhoon Jebi, the strongest to strike Japan since Typhoon Yancy in 1993. Typhoon Jebi made landfall in Shikoku in September in the Kansai region as a Category 5 typhoon. Later in the month, the Category 3 Typhoon Trami struck Tanabe, a city on the western coast of the Kii Peninsula just south of the Osaka-Kyoto-Kobe metroplex. These three events contributed losses of about USD 14 billion to the market, affecting up to the mid-layers of numerous wind excess of loss programmes and exhausted many aggregate covers, obliging insurance companies to seek back-up covers in the midst of these events. GLOBAL REINSURANCE MARKET AND MİLLİ RE IN 2018