Following initial commentary from the January 1st 2018 renewals season, analysts at Deutsche Bank remain positive on the European reinsurance sector, and are standing firm on expected price increases of 1.5% over the next two years and expects companies to report strong volume growth.
Citing first data points on January renewals from reinsurance broker Willis Re’s 1st View Point report, Deutsche Bank analysts have little reason to change their view on pricing improvements of 1.5% over 2018/2019, within the combined ratios of the reinsurance companies it covers.
“Simplistically, this suggests a c.10% price increase on 15% of the portfolio that was loss affected and merely stable pricing on the remainder of the portfolio – which we think is not aggressive,” said the analysts.
For European reinsurers the January renewals season is the most important, and while 1/1 is the least affected renewal season by the 2017 U.S. catastrophe activity, in terms of volume, it’s the most important for European players with roughly 50% of the entire portfolio renewing during the period.
“Given their importance, January renewals should represent a good start into the year in order to set the base in respect to pricing and growth for the upcoming renewals,” said analysts.
Ever since the extremely active and subsequently costly natural catastrophe events in the second-half of 2017, there’s been constant debate and commentary about potential price increases at renewals after years of falling rates. And while the sustainability of any price increases remains to be seen, for the next two years at least, Deutsche Bank believes there is some short-term visibility for reinsurers.
“If we see price increases as expected in 2018, then the spill-over effects should still lead to at least stable price levels in 2019. Within our reinsurance models we reflected a real price increase of 1.5% over 2018/19 which is split into 1.25% in 2018 and 0.25% in 2019,” said analysts.
Adding that from 2020, the laws of supply and demand are expected to prevail, with prices deteriorating again should the marketplace operate in a normal or benign loss environment.
Price increases of 1% to 1.5%, would roughly bring January price quality back to the 2015 level, conclude Deutsche Bank.
Just how sustainable and meaningful price movements at 1/1 and beyond are for both European and global reinsurers remains to be seen, but with competition from both traditional and alternative sources persisting and initial renewals commentary, suggests rate movements might not be as positive as many in the space had hoped for after the events in Q3 and Q4.
