Reinsurance hard market on long-term trickle down to primary margin

Major European and UK insurers have clear sailing for a high-margin underwriting as the hard reinsurance market pushes rate down the line and even the laggard auto segment has accelerated handily in pursuit of runaway loss cost, a key European equity brokerage has claimed.

Analysts at the Berenberg equity brokerage ran a whirlwind tour of 29 major European and UK insurers in a single week, finding only “very few exceptions” to the story of higher for long margins, improved auto pricing and universally strong solvency.

“Reinsurers are enjoying a prolonged hard market cycle, which is spilling over into commercial lines insurance, where it is helping maintain prices and margins for longer,” analysts said of their key takeaway from the meetings.

Auto is the obvious outlier to that picture, but Berenberg likes the green-shoots, albeit in different stages across the island and continent.

“Personal lines motor insurers are beginning to see a recovery in pricing and are at various stages in this cycle depending on the geography,” analysts wrote, placing the UK “strongest and most advanced” and Spain “still lagging.”

Reinsurance is the stalwart and the driver. The tone of Berenberg’s conversations was “very positive” amid continued pricing expansion and reserve padding even as current year nat cat trend is proving innocuous.

“We heard about the continuing supply-demand imbalance, where despite an active and liquid market for cat bonds, there has been little fresh equity capital raised and little net inflows into the collateralised ILS market,” Berenberg said of the bottom line.

Investment books look clean in the would-be economic slow-down thus far. The bugaboo question of real estate is a non-issue, with few insurers near the most touchy areas of office space or the US market. The only issue: real estate liquidity; the drought in deals means few.

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