Berenberg analysts have warned renewal rates in Florida are going to jump by 20-30%, while the Russian invasion of Ukraine will have an ‘accelerating’ impact on reinsurers’ rates.
In a new note, Tales from the City, the firm said that these were two issues that arose from its meeting with the management teams of Beazley, Conduit Re, Hiscox, and Lancashire.
Regarding the war against Ukraine, Berenberg said: “In our view, while the ultimate impact of the Ukraine conflict will take a while to emerge, we continue to believe that this will remain a manageable earnings event for all of the companies that we follow and, as a result, we continue to remain constructive on the sector amid: a) the low valuations; b) an elongated hard cycle; and c) the potential for rate momentum to accelerate.”
It added: “The war losses seem to be surfacing pre-existing issues associated with the bundling of specialty reinsurance products. In simple terms, bundling allows reinsurers to provide more cover, across geographies but also lines of business per policy, without adequately being compensated for it.”
The current situation, it said, was a byproduct of the previous soft market that saw reinsurers competing for business. But conversations with companies, Berenberg said, had led them to the conclusion that the market would end up having to separately price products, due to the outsized losses.
This would, said the authors, “[pave] the way towards a very interesting January 2023 renewal for specialty reinsurance, which will result in increased premiums demand and rates acceleration.”
