Renewals pricing gains fail to sate reinsurers hungry for more: S&P

Global property and casualty reinsurance rate increases were good during the 2021 January renewals, but “came up short of a hard market, and expectations remain high for the rest of the year”, according to S&P Global Ratings.

In a commentary from the ratings agency, titled " Reinsurers Left Wanting More Despite Global Reinsurance Pricing Gains At January Renewals," the firm said reinsurers raised additional capital in 2020, which “appears to have bolstered cedents' negotiating power and limited pricing upside”. However, the analysis said renewals weren’t all about pricing as “tightening terms and conditions were the talk of the town”.

S&P said: "We believe that the global reinsurance sector didn't earn its cost of capital in 2020, as it has struggled to do so in the past four years due to COVID-19-related losses, large natural catastrophe losses, adverse loss trends in certain U.S. casualty lines, and fierce competition among reinsurers exacerbated by alternative capital, which over the years has eaten up margins in the property catastrophe line of business. As a result, our sector view of the global reinsurance sector remains negative. We may revise our outlook back to stable if we believe the sector can sustainably earn its cost of capital.”

The ratings agency said that in 2020, the top 20 global reinsurers incurred about $15.5 billion of COVID-19-related losses (mostly incurred but not reported), with many reinsurers yet to report their fourth-quarter earnings. Taoufik Gharib, senior director at S&P Global Ratings, said: "However, we believe that, given the combination of pandemic losses, elevated natural catastrophes, other insurance losses, and lower reserve releases, the sector will swing to an underwriting loss for the year.”

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