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Concentration of rising prices limits positive influence on profits: Moody’s

27th February 2020 - Author: Luke Gallin

Analysts at Moody’s have said that the outcome of the January 1st, 2020 reinsurance renewals are in line with expectations, and, has noted that the concentration of price hikes is limiting any positive impact on profitability for market players.

Moody'sFinancial services ratings agency, Moody’s is the latest to comment on the January 2020 reinsurance renewal season.

Prior to the renewals, analysts at Moody’s had forecast, with the help of the company’s reinsurance buyers’ survey, an increase in prices for both property and casualty reinsurance business.

According to data from Willis Re, the reinsurance arm of global brokerage Willis Towers Watson, loss-affected property cat reinsurance increased across regions at the renewals, by between 0% and 20% higher. At the same time, loss-free lines of business were relatively flat, globally.

Casualty reinsurance prices also increased, by between 5% and 10% for European loss-hit lines and by between 0% and 7.5% for loss-free business.

“The price of property catastrophe reinsurance cover has been rising since January 2018, reversing a decline that began in 2012. However, the increase has not been broad-based, with loss-affected lines benefiting significantly more than loss- free business. The January 2020 renewals were consistent with both of these trends,” say analysts.

For reinsurers, price increases are welcomed and signal somewhat of a reverse from the prolonged buyers market landscape. However, increases have been concentrated in loss-affected lines, which in turn limits their positive impact on profits, says Moody’s.

Furthermore, prices across the broader portfolio remain lower than pre-2012 levels, which shows just how far rates have fallen in what remains a very competitive and pressured operating landscape.

Looking ahead to the key April and July renewals, which have a strong focus on Japanese and U.S. business, Moody’s anticipates more broad-based price increases.

“The muted increase in loss-free property catastrophe reinsurance prices at the January renewals reflects their European focus,” explain analysts.

Adding: “The modest January price increase for US and Caribbean catastrophe loss free lines was driven primarily by a decline in retrocession capacity and stalled growth in Insurance-Linked Securities (ILS) capacity.”

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