Analysts at Goldman Sachs have warned that hardening reinsurance market conditions are causing more volatility in the primary market, as carriers are forced to retain more risk on their balance sheets.
At the same time, however, analysts observed that reinsurance pricing increases are not yet translating to revenue and top line growth for reinsurers.
Goldman Sachs’ comments follow recent renewal updates from SCOR and Hannover Re, which indicate that the reinsurance market could be experiencing the hardest pricing conditions for over a decade.
“We think this has important implications for the sector including limiting short-term earnings estimate upgrades for the reinsurers, whilst increasing the volatility in primary insurers results,” Goldman Sachs concluded in a recent report.
But while conditions are clearly favourable for reinsurers, SCOR opted to decrease premiums by 12% and Hannover Re by 0.7%, even while capacity was in high demand.
“It is clear from the initial January 1 (1/1) renewal updates from Scor and Hannover that whilst the market is as strong, or indeed stronger than we would have imagined, this is not necessarily playing through to higher revenues as the market (and GS estimates) would have expected,” Goldman Sachs noted.
“Whilst we think the current renewals will ultimately be very profitable, it will take time to be recognised in the P&L. Revenues drive immediate EPS upgrades, whilst margin improvements typically take time to come through.”
Looking at the year ahead for the largest reinsurers, analysts expect Hannover Re and Munich Re to grow gross premiums at 10% each in 2023 (versus 15% previously), with Swiss Re to grow 3% (versus 8%) and SCOR flat for the year (versus 5%).
