Reinsurers hold lingering pricing power even as the cycle turns: Moody’s

Reinsurers might yet squeeze further pricing gains out of the reinsurance market in the coming renewals despite having balanced the scales of earnings volatility vis-à-vis their primary partners, analysts at the  Moody’s rating agency have suggested.

Reinsurance pricing is fully caught in an equation between cat losses, market capacity and inflation trend, the combination of which “will determine if management teams will have the leverage to ask for additional pricing going forward,” Moody's senior analyst in global reinsurance Laline Carvalho-Neff said following presentation of a sector outlook from the rating agency.

“Although current pricing conditions bode well for reinsurers, the cyclical nature of pricing brings into question the duration of the current cycle,” analysts wrote in their update to the segment outlook.

In the reinsurers’ favour, cat loss history and a cat-heavy first half of 2023 create an obvious “reluctance” to back down on pricing.

The balance on capacity is split between mounds of excess capital sitting unutilised at seemingly hesitant traditional reinsurers and a “relatively limited” flow of new capital to any other channels, Carvalho-Neff said.

Comments come as Moody’s held its outlook for the global reinsurance industry at stable, citing the still healthy balance sheets plus the improvement in profitability that has flowed from improved pricing and the return of investment earnings. Large cat losses and the impact of inflation remain vulnerabilities.

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