Global reinsurance prices to rise slightly or stay flat: Moody’s

Global reinsurance prices are set to stay flat or rise slightly, with buyers reassessing risk-adjusted returns following substantial natural catastrophe claims in 2017 and 2018, according to a Moody’s survey.

In Moody’s annual survey of property & casualty (P&C) reinsurance buyers, responses indicate a shift in pricing momentum, with the majority of cedants expecting prices to stay flat or rise moderately in 2020.

“This compares with an expectation of flat-to-lower pricing in last year’s survey, and reflects market participants’ reassessment of risk-adjusted returns following substantial natural catastrophe claims in 2017 and 2018,” said Moody’s.

Most participants in the survey said they saw no meaningful change to their reinsurance buying in 2020, and are focused instead on tweaking existing arrangements.

Reinsurers’ financial strength and reputation remain key considerations for cedants, with some citing concerns about reinsurers’ dependence on retrocession, said Moody’s.

“Demand for alternative capital-based reinsurance continues to grow modestly. Moderate price increases reflect risk reassessment.”

Cedants also expect price pressure to be strongest for casualty reinsurance, reflecting claims inflation in some liability classes, said Moody’s.

The agency added that a reinsurer’s reputation and its record in paying claims remained crucial for cedants when selecting a reinsurer.

Cedants are also directing more business to their core reinsurance partners.
The adoption of alternative capital is to grow steadily, said the survey. Most primary insurers foresee no change in the amount of alternative capital-backed reinsurance they use. However, those that plan to use more outnumber those that expect to use less.

Collateralised reinsurance remains the preferred form of alternative reinsurance. Cedants expect increased availability of alternative cover over time, including for casualty risks.

A small number of respondents plan additional reinsurance purchases in 2020, with the aim of limiting earnings volatility, but growth will be dampened by meaningful adjustments, said Moody’s.

Demand for reinsurance against cyber risk is also growing, said Moody’s. Almost 70 percent of cedants said they were somewhat likely to purchase additional aggregate cover.

Reinsurers remain cautious regarding cyber risk due to challenges in managing risk accumulations, lack of cyber risk data, and the industry’s limited track record of modelling cyber losses, said Moody’s.

Some cedants have purchased aggregate covers that include coverage for “silent” cyber exposures—cyber risk coverage that is embedded in commercial policies because of ambiguous wording, which is an area of growing concern.