Analysts at Goldman Sachs remain cautious in their outlook for commercial property and casualty (P&C) re/insurance in 2020, as potential positive rate momentum is balanced against broadening loss trend deterioration.
That said, the firm believes many reinsurers are positioned to grow their top lines this year, supported by pockets of rate hardening, diminished ILS capacity, and increased demand for facultative and casualty quota share.
Overall, Goldman Sachs finds the pricing set-up in 2020 to be favourable for commercial insurers and reinsurers, with property-oriented reinsurers set to be the greatest beneficiaries, after a slower start to the year in 1/1 renewals.
Blended commercial pricing is anticipated to be in the mid-single-digits range, with increases led by property, commercial auto, excess casualty, management liability and specialty lines, partially offset by continued declines in workers’ compensation.
For reinsurers, three consecutive years of significant catastrophe activity should lead to the greatest improvements in property catastrophe lines, analysts said, particularly for retrocession and low excess of loss layers.
However, pricing is still likely to be modest coming out of the 1/1 renewals due to the flat rate environment for Continental Europe and the benign loss experience for other key areas, such as Mainland Asia, LatAm, Middle East and Africa renewals.
Goldman Sachs anticipates rate increases of at least 15% at the 4/1 Japan renewals (including over 30% increases in Japan wind), reflecting up to $5bn of Typhoon Jebi loss creep since last year’s renewals, as well as the impact Typhoons Faxai and Hagabis in 2019, estimated at $15-25 billion.
It also forecasts further double digit rate increases in 6/1 and 7/1, reflecting Hurricane Dorian’s damage to the Caribbean and near miss of Florida, as well as another $2.5bn of loss creep from 2017’s Hurricane Irma.
