Following meetings with the management teams of major insurers and reinsurers, analysts at Berenberg say rates are expected to increase by at least 20-30% at the upcoming June renewals.
According to Berenberg, renewals look to be disorderly and seem to be reaching an inflection point as June 1 approaches, with a lack of reinsurance capital driving a capacity crunch.
It’s thought that primary local insurers are struggling to place their reinsurance programmes as there is little appetite for accepting the risk, particularly across lower layers of programmes, which points to a traditional hard market amid market dislocation.
“The issue is not just a pricing one, where rate increases of at least 20- 30% are to be expected, but vary depending on different layers,” Berenberg explained.
Moreover, analysts note that the industry is also cautious on whether the recent legislation changes are adequate to deal with the structurally unpalatable elements of the market.
These include issues such as the claims fraud and associated litigation as a result of the assignment of benefits (AOB) practise, which allows policyholders to pass on the insurance claims to the contractors.
And counterparty risk is also a key concern given the recent bankruptcies of local state carriers as a result of these profitability issues.
Berenberg’s insights follow recent meetings with management from firms including Beazley, Conduit Re, Hiscox and Lancashire.
In addition to the general rate increases of 20-30%, analysts expect to see accelerating rate momentum across specialty re/insurance and particularly among classes affected by the Ukraine war, such as aviation, marine and terror.
Berenberg warned that the ultimate impact of the Ukraine conflict will take a while to emerge, but assured that it should still remain a manageable earnings event for most re/insurers.
