Retro pricing poised for January price hike: Moody’s

Retrocession pricing is poised to see potentially significant price increases at 1 January 2019 as recent catastrophe events trapped collateral, according to a December 18 Moody's report.

Losses late in the year from hurricane Michael and the California wildfires have “trapped” the collateral of a significant portion of total retrocessional capacity deployed during 2018 and resulted in a late renewal season, Moody’s said.

“In the absence of new capacity, it appears retro pricing is poised to see potentially significant price increases at 1 January. To the extent reinsurers relied on retro capacity to support gross lines, they may be pulling back capacity as retrocessional coverage becomes more expensive,” the agency said in the report.

The degree to which this anticipated price-hardening spills over to the broader reinsurance market will depend on how the insurance-linked securities (ILS) market responds to two years of poor underwriting results that for some funds have wiped out years of gains, Moody’s said.

Some market participants believe there could be some withdrawal of investor capacity that drives pricing higher, it noted. Others believe ILS investors will retain a “business as usual” perspective and provide sufficient capacity into the market that keeps a lid on price increases. In any case, this will be a late renewal season with pricing at stable to higher levels, Moody’s said.