Reinsurance rate gains can hold the course into 1.1. renewals: Moody’s

The reinsurance pricing momentum that drove US & Bermudian reinsurers to H1 earnings gains has what it takes to continue through the January 2023 renewals,  Moody's analysts have claimed.

“Given inflationary pressures, particularly in rebuilding costs as well as higher frequency and severity of catastrophes, we expect pricing momentum to continue through the January 2023 renewal season,” analysts said of outlook.

Management teams have expressed strong adherence to new plans to stabilise earnings, either by limiting property cat exposures or long-tail inflation risks. The upshot: the underwriting discipline to keep a cap on capacity.

“Despite the favourable pricing conditions, the sector remains exposed to potentially large catastrophe events, rising loss costs as a result of economic and social inflationary trends, and uncertainty with regard to exposures related to the ongoing military conflict in Ukraine,” analysts noted.

The top six US and Bermuda-based reinsurers reported “strong operating performance” for the first six months of 2022, supported by “continued pricing gains in most reinsurance and specialty lines of business, tighter terms and conditions and low cat losses,” Moody's said of the rear-view mirror view.

Gross written premiums rose 10% year on year, “reflecting primarily higher premium rates and rising exposures in certain business segments.”

“Property catastrophe coverages continued to see significant firming during the second quarter of 2022, while casualty rate increases moderated but remained above loss costs,” Moody's claimed.

Evacuations from property cat continued in H1 despite the firmer pricing as companies prioritise earnings stability. Capacity constraints coupled with strong demand at the mid-renewals to render a strong pricing move.

All six studied reinsurers managed to trim combined ratios from prior year period levels, although for some that was only possible thanks to reduced cat losses or the disappearance of Covid losses. Cat losses were said to account for only 4 percentage points of combined ratio for the cohort. Underlying combined ratios were clearly up for RenaissanceRe and Alleghany.

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