In contrast to the recent 1/1 renewals, which would neither support nor derail the sub-sector, Analysts at Deutsche Bank (DB) see the upcoming April renewals as a positive catalyst for reinsurers due to the role of Japanese business.
Probably more than any other traditional market, Japan is still a traditional payback market, meaning cedents are willing to accept higher prices following severe previous year reinsurers’ losses.
Analysts consider the July 2011 and April 2012 renewals good indicators of how this year’s April renewals will unfold.
These two past instances followed severe losses from the Fukushima/JP earthquake loss in April 2011, leading to price increases of up to 50% in the Japanese business and triggering April (real) price increases of between 5% (Munich Re) and 17% (Swiss Re).
Taking the April 2012 price increases and adjusting them for the loss burden in 2018, Analysts calculate price increases of 1% (Munich Re) to 10% (Swiss Re) for the upcoming April 2019 renewals, with the actual industry position likely somewhere in the middle.
Meanwhile, analysts believe that January renewals should have little room for surprises in pricing and will barely move the needle. Within flattish developments, they expect minor price reductions of up to -0.5%.
However, DB analysts expect a similar theme to the last renewals season, which had stronger growth but subdued/disappointing pricing.
Therefore, there’s an expectation that growth will be more of a key theme than pricing in the upcoming renewals reporting season.