Property reinsurance price increases are expected to rise from current low-single digit levels to double-digits as 2019 progresses, according to analysts at multinational investment bank and financial services firm Credit Suisse.
Credit Suisse underlines the ~40% retrocessional pricing increase reinsurers have faced, following substantial retro market losses in both 2017 and 2018, as one of the reasons behind this outlook.
Furthermore, Credit Suisse points to the fact that reinsurance demand from corporations is increasing following heightened catastrophe losses, and how third party reinsurance capacity is modestly shrinking after two years of single-digit, industry-wide losses.
Significantly higher retro pricing is an expense headwind for reinsurers who have relied on it in the past; while increasing primary reinsurance pricing is an offsetting tailwind, says Credit Suisse.
Combining these two dynamics, Credit Suisse feels no reason to change its next twelve-month reinsurance segment margin outlook, which calls for moderate (<100bps) underlying margin deterioration.
In addition, analysts state that Insurance Linked Securities (ILS) investor demand has decreased slightly as investors are disappointed with returns by the asset class combined with higher interest rates compared to a few years ago.