Morgan Stanley analysts have warned that the current reinsurance market landscape has challenged the long-term business model of reinsurance companies, in light of disappointing rate increases on the back of 2017’s catastrophe losses and five years of pricing reductions.
In spite of the record-level of global catastrophe losses experienced in 2017, property catastrophe reinsurance pricing remains under pressure, driven by an abundance of both traditional and alternative capital that is limiting price increases across the market.
Morgan Stanley analysts note that property catastrophe reinsurance pricing during the June 1st renewals increased by 1% on average, which is below market expectations.
“While still an improvement after 5-year 50%+ cumulative pricing reductions, the current reinsurance market environment has challenged the long-term business model of reinsurers, keeping M&A on radar screens,” said analysts.
In the current market landscape, efficiency is becoming increasingly essential as market players look to gain an edge in a very competitive environment.
Alternative, or third-party reinsurance capital remains very committed to the property catastrophe space, evidenced by its response to 2017 catastrophe events, and traditional players will likely need to continue embracing the capital markets in order to augment their operations during the current market cycle.
It remains to be seen exactly what the reinsurance cycle looks like moving forward, with some industry commentary suggesting that companies will have to get used to a new normal, underlined by a flatter cycle and less pronounced price hikes post-event.