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Capital rush to decelerate reinsurance pricing: analysts

9th July 2020 - Author: Matt Sheehan

Analysts at Credit Suisse believe that reinsurance pricing increases are likely to decelerate as the market heads into 2021, partly due to the recent spate of capital raises.

The firm maintained that the fragile state of the marketplace should help to prolong elevated pricing levels, but warned that rate increases would begin to fall from the heights seen at the mid-year 2020 renewals.

This is partly due the rush of new capital that has entered the market as re/insurers have looked to capitalise on the favourable pricing environment.

An estimated $10 billion or higher of new equity funds have been raised in the last few months, with companies such as RenReHiscoxBeazley and Lancashire looking to take advantage of the improved pricing conditions.

Additionally, the majority of traditional reinsurers are throwing off earnings levels incrementally in excess of their costs of capital.

In the near term, Credit Suisse added that there are numerous unknown factors that could influence the level and direction of pricing.

These include whether insurers lose dozens of court cases relating to business interruption claims and/or certain states in the US pass legislation to make BI retroactive, which would trap a minimum of between $9-18 billion of alternative reinsurance capital

Pricing also depends on how many billions of additional capital are raised in the coming months, much of which has been opportunistic rather than defensive.

And furthermore, the level of catastrophe losses incurred during this year’s hurricane season will be a decisive, although Credit Suisse believes that only a benign year would curtail pricing below double-digit rises.

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