Insurance and reinsurance Industry analysts Keefe, Bruyette & Woods (KBW) and Morgan Stanley have suggested that the outlook for property and casualty (P&C) reinsurance is positive both in terms of pricing and demand.
KBW notes that, although January 1st 2018 reinsurance rates were below most companies’ post-Q3 2017 expectations, reinsurance pricing shows a clear year-on-year increase with only a few reported signs of accelerating loss trends.
It also maintains an optimistic mid-year forecast, as it predicts that more risk-affected account renewals will drive 6/1 renewal rate increases, and suggests that recent interest rate increases are providing new money yields close to blended book yields.
Additionally, it expects reinsurance demand to increase as primary insurers attempt to manage recent accident-years’ reserve risk, and as they react to the severity of events like Hurricane Irma, for example.
Morgan Stanley offers similar positive predictions for P&C companies, observing steady improvements in P&C pricing, and noting that 1/1 2018 saw property catastrophe reinsurance rates turn positive for the first time in five years.
It remains cautious regarding the magnitude and duration of the upturn, but recognises its value in terms of mitigating increases in underwriting margin pressures in recent years.
The analysis from both KBW and Morgan Stanley comes after the recently held 43rd Association of Insurance and Financial Analysts (AIFA) annual conference.
Analysts explain that during the event, panellists concurred in suggesting that current 1/1 pricing will likely reflect a ‘new normal’, in which reinsurers can no longer expect double-digit property returns.
Analysts now believe that third-party reinsurance capital is a permanent and growing feature of the reinsurance landscape, and is likely to diminish the pricing power of the market over time.