European reinsurers are forecast to see further rate improvements at mid-year after seeing price increases of between 1-3% at Jan 1st, although price momentum is expected to stabilise in 2019 as supply demand dynamics rebalance in a normalised loss environment, according to Deutsche Bank analysts.
Analysts view for the European reinsurance sector in 2018 is positive with expectations for prices to gain further momentum throughout April to July renewals.
This follows January renewals which saw SCOR come out on top with the best renewal outcome at a 3% price increase, with Deutsche Bank stating that the differentiating factor was larger quota share deals distorting the pricing picture.
The French reinsurance giant could now grow into U.S. casualty and still see an improvement in underlying combined ratio toward 94%, according to Deutsche Bank.
However, despite a promising start to the year of rate increases, the supply-demand dynamics on the global reinsurance market is unchanged, “we therefore expect a stabilization of prices in 2019, which will benefit from some positive spill-over effects from 2018 into 2019. However, from 2020, we continue to expect prices to deteriorate again if major claims like natural catastrophes remain on expected levels,” said Deutsche Bank.
While price improvements were good overall, analysts explained that they’ve also been due to volume growth, Munich Re and Hannover Re saw the impact of big quota share business (like the IAG contract) which typically go for “higher volume, lesser risk, higher commissions and lower price improvements.
Technical price improvement at SCOR continues to screen as having achieved the strongest improvement in technical profitability, if volume growth and price improvements are multiplied based on a portfolio size of 100.
“We believe that Scor will use this excess profitability from the January renewals in order to partially mitigate mix shift effects when growing into US casualty business going forward. We would therefore expect Scor to post higher growth rates going forward,” said Deutsche Bank.