Berenberg has said that it is confident that reinsurance rate rises will be at least in line with inflation.
The firm released a note called Monte Carlo: Reinsurers Hitting a Home Run, in which it said that not only would rates go up by at least the same amount as inflation, but that capacity constraints are a key concern within the market, with brokers keen to soon secure business.
Berenberg wrote: “The impact of rising interest rates, and social and cost inflation, as well as a prolonged period of above-average natural-catastrophe (nat-cat) losses, continues to drive the market to demand higher returns on capital.
“While wind season has so far been very benign with regards to losses, we are not out of the woods yet and, even if there is a lower level of natural catastrophes this year, the uncertainty created by the Ukraine war, as well as broader macroeconomic concerns, means that rates are expected to continue to go up in 2023 and potentially into 2024 as well.”
It added: “Considering the underlying pricing trends, we continue to remain positive on the outlook for the sector, given the substantial increase in underlying earnings power from four consecutive years of rate increases, while at the same time recognising the various headwinds that could continue to put pressure on companies’ earnings.”
The firm also said that Munich Re and Conduit Re will fare best due to the former’s strong balance sheets and reserve positions, and the latter’s lack of legacy issues.
It wrote: “Munich Re management expects the hardening market to continue, with the current reductions in capacity at the industry level leaving Munich well placed to take advantage of the current market environment. Management was keen to highlight that the rate changes it publishes are fully risk-adjusted and hence a very transparent representation of the ultimate impact on the technical result of the business.”
Berenberg then turned its attention to Hannover Re, SCOR, and Swiss Re.
Of the first, it wrote: “Hannover Re likened the positive tone of this year’s Rendez-Vous to that last seen in 2008. New views with regarding to modelling catastrophe risk due to increased frequency of losses over recent years, as well as inflation, mean rates continue to go up.”
“SCOR,” it added, “reiterated the positive pricing rhetoric heard in our other meetings, as well as its ongoing belief that it can continue to take lines where it sees the greatest opportunities, such as global lines, credit and surety, marine, speciality and larger commercial lines.”
It concluded by saying that Swiss Re continues to be optimistic about the market’s outlook, expecting rate increases across its property and casualty portfolios at the January 2023 renewals.
