Reinsurance prices in the European market should continue to gradually improve throughout 2019 as demand goes up and capacity becomes more constrained, according to analysts at multinational investment bank Barclays.
Barclays estimates that the reinsurance industry is set to incur around $70 billion in large loss claims this year, which is unlikely to trigger a capital shortfall or result in any solvency issues.
However, following two consecutive years of disappointing returns, analysts predict that alternative capital will see lower inflows over 2019, constraining overall market capacity.
The firm added that underlying alternative capital capacity will also be lower at the 2019 renewals due to a substantial part of $100 billion notional that is still trapped as a result of 2017 loss creep and 2018 cat activity.
Additionally, ongoing investigations regarding reserving practices at CatCo, a retro insurance-linked securities (ILS) manager and subsidiary of Markel Corporation, may result in investors becoming more cautious in their allocations to this asset class.
Barclays also claimed that higher reinsurance and retrocession prices will support primary insurance pricing, particularly in specialty and large commercial property and casualty (P&C) lines.
Over a 12 to 18 month period, price increases in 2018 and 2019 should support technical results over the next couple of years, analysts added.
In the long term, Barclays expects prices to decline again as trapped capital is released and re/insurers take advantage of the improved technical environment.
Furthermore, the firm posited that rising interest rates and better pricing should continue to make reinsurance assets attractive for mergers and acquisitions (M&A) activity.