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Cat reinsurers broadly optimistic about mid-year renewal pricing: KBW

24th April 2020 - Author: Charlie Wood

Catastrophe reinsurers attending the AIFA 2020 conference remain broadly optimistic about mid-year renewal pricing, with some estimated increases approaching 50% for the Japan-focused 4/1 renewals, according to analysts at Keefe, Bruyette & Woods.

pricing-graphIn addition, roughly 20% increases are expected for the Florida-focused 6/1 renewals, with the delta reflecting Japan’s significant prior- and current year losses since 4/1/19, and the Japanese market’s perceived focus on longer-term relationships.

Analysts say this “U-shaped” reinsurance curve persists, with some executives reporting competitors raising (already elevated) quota share ceding commissions in response to rising primary insurance rates.

A global reinsurance panel featuring CEOs from ACGL, Axis Re and Renaissance Re described 1/1/20 renewals as the start of broadly improving reinsurance market conditions that will probably endure for several years, with significant corrections required in some parts of the market.

VBW adds that 1/1 renewals mostly reflected increased discipline and solid rate increases on loss-impacted lines like energy and aviation, with disappointingly flat-to-down rates on European wind business that global reinsurers view as an important source of diversification.

Panelists: Marc Grandisson (CEO, ACGL) Steve Arora (CEO, Axis Re), and Bob Qutub (CFO, RenaissanceRe)

For 4/1 renewals, ACGL CEO Grandisson expects healthy “double digit” increases that contrast with 2019’s more disappointing increases, and exceed simply higher expected loss exposures stemming from reevaluated Japanese catastrophe models.

Axis Re’s Arora expects Japanese clients to recognise the need to recalibrate their net risk appetites, and to maintain long-term strategic reinsurance relationships, suggesting “orderly” 4/1 renewals.

He expects less order during the 6/1 renewals, with reinsurers likely showing much less patience for Floridian carriers challenged by litigation and loss creep.

RenRe’s Qutub emphasised that despite its overall profitability within Florida, he still sees a need for significant mid-year rate increases to sustain adequate expected returns.

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