David Flandro, Managing Director at HX Analytics, has predicted that the upcoming June and July reinsurance renewal period will yield more favourable pricing improvements than were seen at January and April.
Speaking to analysts at Morgan Stanley, Flandro noted that, while industry capital remains high, reinsurers are facing constraints on profitable deployment from rating agencies, solvency requirements, and Lloyds, among others.
At the same time, low investment yields have put additional pressure on the returns generated, necessitating a further reduction in combined ratios to meet required returns.
Flandro therefore argues that these factors, along with changes in risk perception (climate change, higher cat losses, rising number of secondary perils), should continue to drive further rate gains.
What’s more, June is largely focused on Florida, which saw record levels of named storms last year and where forecasters are already predicting and an active hurricane season for 2021.
And for July, Flandro referenced a number of events that could potentially put upward pressure on pricing, including last year’s Midwest Derecho and the rising costs of wildfires.
Meanwhile, Morgan Stanley warns that the recent winter storm in Texas could come in toward top end of the $10bn-$20bn range of industry estimates, instilling discipline among reinsurers and potentially driving increased demand from primaries.
Flandro noted that financial lines pricing, particularly in the London Market, is among the strongest, whereas further improvements are required in property lines.
Casualty lines across the reinsurance market have seen pricing recover back in line with levels seen in the last ‘hard’ market of 2012 to 2013, he added, but only the retro market is seeing true hard market conditions.
Asked whether the roughly $10 billion of new capital that entered the industry last year could affect pricing trends, Flandro was confident that there would be minimal impact.