S&P points to ‘promising’ reinsurance price trends for 2019 despite record cat losses

Global reinsurance pricing is “a firming market” rather than a hard one, according to S&P Global, which suggested that “green shoots” could be on the way for reinsurers in 2019.

In a recent report the ratings agency said that record back to back catastrophe years in 2017 and 2018, and the loss creep resulting from this, were “shaping 2019 renewals”.

While January 2019 renewals showed modest price increases, by the time April and June renewals came round price rises were “more pronounced” with property catastrophe rate increases ranging from 15 percent to 25 percent on loss affected accounts.

“The past few years have been interesting, to say the least, with reinsurers jostling hard - a trend that continued into June renewals. In general, the reinsurance renewals have been orderly but late in certain instances, as participants tried to figure out the market clearing price,” the report said.

Analysts noted that despite the magnitude of the catastrophe losses in 2017/2018, global reinsurance pricing in aggregate was flat to up 5 percent in 2018 and flat to up 3 percent during the January 2019 renewals. “This left reinsurers disappointed, though it did not diminish their optimism too much for April and June renewals,” the report found.

The last two renewal periods had “a fair bit of positive momentum”, with the market bearing rate increases in the case of loss affected accounts. “Considering Japan and Florida were at play in April and June, respectively, two regions that faced significant losses, it would have made for a depressing outcome if the risk-adjusted pricing gains were any lower.”

S&P suggested that the April and June renewals “served to reinforce the recent trend of regionalised reinsurance pricing movements”, explaining further, “there's no rising tide that lifts all boats, but rather, targeted price increases limited to policies and regions that were affected by losses without material spill over effect to other lines of business or regions.” But the agency report added that reinsurers' sentiment was more positive in general and that they were “more willing to push for price increases across business lines”.

Other factors that informed S&P’s “promising” prediction included the way that alternative capital has become an integral part of the property catastrophe market. Although there has been a “recent slowdown” in activity, the agency said it expected growth to pick up once the latest bumps were smoothed over.

Further positives for reinsurers came from weather analysts at the National Oceanic and Atmospheric Administration (NOAA). They have predicted a near-normal 2019 Atlantic hurricane season, with El Nino and a warmer-than-average Atlantic shaping this season's intensity.

Taoufik Gharib, S&P Global Ratings credit analyst, commented: "The seminal question is: Will the recent green shoots will take root and lead to sustainable profitability, thereby enabling reinsurers to earn their cost of capital, or will they wilt over time? Thus far, the trend looks promising."

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