Industry experts have so far concurred that the re/insurance industry’s estimated $100 billion in aggregate Q3 losses won’t lead to a bottoming out of the current pricing cycle, however, global property catastrophe excess of loss pricing is forecast by Credit Suisse to increase by 10% at 2018 renewals, a price hike last seen at similar levels in 2012.
Credit Suisse analysts suggest the greatest rate increases will be experienced at January 1st with many retrocession and global covers renewing, with an expectation for “higher average renewals for reinsurers that have business mixes weighted toward Jan 1 renewals or loss exposed areas such as the Caribbean.”
A 5% increase in 2018 pricing is on the cards for primary catastrophe exposed property, though non-catastrophe exposed primary property renewals are expected to be flat.
“Assuming a median loss year in 2018 or lower, our base case is that pricing is flat in 2019 when we forecast book value growth returning to more normalized levels,” said Credit Suisse. “We expect a “bounce” in pricing but we don’t think it will hold if 2018 is a median loss year.
“One issue with evaluating the growth opportunity based on current market shares is that reinsurers also have the ability to quickly commit capital to new opportunities should the return hurdles improve sufficiently and provided that they have excess underwriting capital to increase Probable Maximum Loss.
“Interestingly, a comparison of current PMLs to post event 2012 PMLs reveals that 1-in-250 top peak PMLs (usually Atlantic Hurricane) as a percentage of equity are higher now than they were then despite the well documented decline in property catastrophe pricing,” Credit Suisse explained, demonstrating the growing profitability challenges facing the industry after several years of pricing declines.
Analysts expect retro pricing to increase more than global excess of loss pricing next year, which is likely to offset renewal rate increases for reinsurance companies.
While the scale of Q3 insured losses is large enough to impact pricing in some lines of business in areas where re/insurers received the highest levels of claims and raised reinsurance demand, Credit Suisse suggest any upwards pricing trends to be temporary and ultimately overshadowed by retro price increases and reinsurance capital oversupply.
