While risk-adjusted pricing gains in the mid-single-digits at the Jan 1st, 2021 reinsurance renewals fell below expectations, analysts at Morgan Stanley feel it’s likely that “more pronounced” rate rises will come to fruition at the April and mid-year renewals.
As the COVID-19 pandemic compounded losses for reinsurers in 2020, the industry’s hopes for meaningful rate rises at the 1/1 renewals intensified; alongside a heightened focus on underwriting to mitigate fading investment returns.
Broker reports have highlighted that the year’s first renewals were complex yet adequate, characterised by negotiations around exclusionary language as T&Cs tightened, and improved pricing, year-over-year.
Risk-adjusted gains in the mid-single-digits is a marked improvement on the flat to -5% rate movements witnessed in Jan 2020, but as noted by Morgan Stanley, remains below expectations.
Willis Re, the reinsurance broking arm of Willis Towers Watson, reported risk adjusted price improvements of c 2.9% in property lines at 1/1 2021, which is someway below previous expectations of +5%.
At the same time, broker Howden reported property catastrophe reinsurance rate rises of roughly 6% at the renewals, while Guy Carpenter noted that overall, rate rises were more moderate than had been first anticipated.
Overall, pricing came in lower than initial expectations of +5% – +10% back in October. But despite this, analysts say it’s “encouraging to see that the market has finally turned and that the reported changes were ahead of those at the beginning of 2020”.
Continuing to note that, “we expect earnings quality to improve and see potential for further rate increases over the remaining 2021 renewals.”
Of course, the January renewals have a large focus on EMEA, Latin America and certain parts of Asia, leaving much of the loss-hit accounts up for renewal in April, June, and July, which have a focus on Japan, Florida, and the rest of the U.S. and other parts of the world, respectively.
While analysts clearly see potential for more notable reinsurance rate increases at the renewals later in 2021, they caution that global rate improvements remain on course “to meet our mid-single-digit expectation for the full year.”