Analysts at Fitch Ratings have reported that favourable reinsurance pricing trends are set to continue into 2021, but warned that the large influx of underwriting capacity from recent capital raises could halt this momentum.
Fitch noted a significantly harder pricing environment at the June renewals, and attributed the dynamic to years of accumulating catastrophe losses, investment market losses, and fallout from the COVID-19 pandemic.
The environment has attracted increased capital as a result, with the potential for double-digit price increases to extend into 2021.
An estimated $5 billion or higher of new equity funds have been raised in the last few months, as companies such as RenRe, Hiscox, Beazley and Lancashire look to take advantage of the improved pricing conditions.
Publicly traded re/insurers have raised billions from secondary offerings, while privately held firms have raised capital from existing shareholders, debt issuance and recapitalization backed by private equity (PE) firms.
Fitch expects additional tie-ups with PE companies and side cars to be utilised to raise and deploy capital and scale existing reinsurers more so than start-ups or new market entrants.
Large global reinsurers and Lloyds of London are among the entities with the highest reported estimates of pandemic related losses to date, which reinforces further price hardening in reinsurance and specialty insurance lines.
The underwriting response to the pandemic includes tighter terms and conditions, such as virus and communicable disease exclusions and sub-limits in more coverage areas.
At the Florida renewals in June, reinsurance rates were up by 20% to 30% for most accounts, with increases of more than 50% seen in some cases.
In response to these market conditions, major market participants such as Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund reduced the limits they purchased for 2020.