“The hard market will sustain through 2024 as the industry’s resolve to deliver adequate returns continues to hold,” suggested RBC Capital Markets in its Monte Carlo RVS 2023 takeaway report.
RBC’s report noted that capital discussions have centred around the cost of it over its overall availability.
“Appetite is strongest in Property risks, and weakest in Casualty risks. Incrementally we feel there is better appreciation and alignment of loss costs now across the industry, including at the primary level,” the firm said.
It continued, “In the near to medium term, we expect reinsurers to secure attractive growth at very healthy return levels as demand for reinsurance picks up.
“In the longer term, there is a prospect for shallower pricing cycles although it remains to be seen how strong reinsurers’ resolve sticks. We remain bullish on the sector.”
Underling another key takeaway from the event, RBC said there is still a hard market, but expectations are more aligned with primaries this time.
The firm went on, “This contrasts to last year’s renewals which one might describe as a step change and some primaries were taken aback. Reinsurers’ expectations for the impending renewals appear to be better signposted this time.
“There will be further rebalancing of the insurance value chain between primaries and reinsurers as both parties acknowledge the inequity of how previous losses were shared.”
According to RBC, reinsurers are “arguing for a reversion to its core protection for capital events, while earnings events should be retained by primaries.”
“Higher reinsurance costs would likely harden primary rates as we’ve seen in certain lines already. More alignment between reinsurers as well. Risk appetite across lines seems to be rather consensual,” the firm explained.
Meanwhile, RBC also highlighted that risk trends are being “better appreciated” by primaries, not least due to another costly first-half of cat losses.
“Climate and inflation factors remain top of mind, driving higher loss costs. Higher retentions mean earnings of primaries are more exposed to large losses, therefore leaving capital buffers more exposed as well. This will drive the need for more capital protection, and attractive reinsurance rates here mean this demand would likely be met,” RBC said.
The firm concluded, “Following a notably softer set of renewals this year compared to other risk classes, some are expecting this to change in 2024 and as the lag in inflationary effects, both social and economic, come through.
“Primary rate decreases in certain pockets such as D&O is another detractor. Accordingly, reinsurers look to take a more defensive stance and retrench. Unlikely cat risks, this is less likely to result in a capital hit and might instead gradually bleed through and dilute front book margins.”
