Positive pricing momentum—it’s the favorite phrase of many reinsurance executives, who are hoping that the momentum they’ve seen in 2019 will continue during the coming January renewals and beyond.

The question is whether they will be disappointed, once again. Over the past few years, when reinsurers gathered at Rendez-Vous de Septembre—the official start of the renewal season—they started the meeting being bullish about rates but ended their discussions dejected. However, it looks like there is reason for reinsurers to cheer this year.

During the September 2019 RVS meeting, practitioners and observers agreed that it’s a firming market but not a hard one.

While the competitive headwinds are still there—namely excess capital and fierce competition—there are other pressures that are pushing prices upward from both ends of the value chain, primary and retrocessional.

Many reinsurers attending the RVS stressed that upward pricing momentum is necessary because they need to charge the right premiums for the risks they are assuming. It’s a matter of long-term stability.

Here, Carrier Management provides a roundup of the market viewpoints from AM Best, Aspen Re, Fitch, Hannover Re, IGI, Korean Re, Moody’s, SCOR and Swiss Re, in no particular order.

Moody’s Investors Service
“Pricing for reinsurance and for commercial insurance broadly turned negative around 2012 and had been trending down until we got the big hurricanes in 2017 when [rates] flattened out,” despite the fact that the industry saw the largest insured loss year in history, said Brandan Holmes, vice president and senior credit officer, EMEA Insurance, at Moody’s Investors Service.

Brandan Holmes
“A lot of reinsurers were quite disappointed because they expected greater firming of rates in response to the losses they’d taken,” he said during a meeting held recently by Litmus to discuss the key takeaways from the 2019 RVS. (Litmus helps the insurance and reinsurance sector better understand ratings and rating agencies.)

When 2018 brought another big cat year, creating the fourth-largest insured loss year, prices started responding a bit more, he said. “Yes, pricing is getting better, but it’s still not at technical levels for a lot of lines. On average, pricing is still on average 20 percent lower than it was in 2012 when prices started going down. The picture is better and it’s improving, but it’s by no means a hard market,” Holmes emphasized.

Holmes explained how we got here. First, he said, primary carriers, which have experienced losses, are driving some of the market tightening by raising rates and pulling back on capacity.

A lot of the big commercial insurers have pulled quite a lot of capacity out of the market, such as Lloyd’s, AIG and FM Global. That’s caused primary prices to start rising quite significantly and has benefited the reinsurers on their quota share business.”

Another trend driving price increases is coming at the other end of the value chain—in the retrocessional market. “Many reinsurers have been keeping their gross catastrophe exposure quite high but buying down the net exposure using retro,” Holmes explained.

A lot of alternative capital investors are providing capacity in the retro market, which has helped reinsurers through these large cat events “because a lot of that loss was put into the retro market and onto alternative capital investors,” he said, noting that this is one reason reinsurers’ balance sheets stayed strong through these two large loss years in 2017 and 2018.

Some of the newer capital market investors were apparently surprised by the extent of the losses and did not have a number of profitable years to help them absorb the losses, he continued. So, some retro capacity came out of the market in the January 2019 renewals or pricing went up quite strongly, he said. These prices hikes affected reinsurance pricing “because a lot of reinsurers are reliant on retro.”

Holmes said that casualty prices are being pushed up by low interest rates and increased claims frequency and severity. Casualty underwriters can no longer rely on investment income to offset soft prices…


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