Reinsurance price increases at the January 1st, 2018 renewals season are “a good start for the reinsurance industry,” and, combined with efforts to lower operating costs, should lead to improved combined ratios for global reinsurance players, according to Moody’s Investors Service (Moody’s).
Citing Willis Re’s 2018 reinsurance renewals report, which states that average pricing for property catastrophe and risk programs increased by 0% – 7.5% at the January 1st renewals, Moody’s describes the recent rate movements as credit positive for reinsurers.
Underlined by benign catastrophe loss activity, persistently low interest rates, and intense competition from both traditional and alternative sources, rates in the global reinsurance sector had been declining for the last five years, leading companies to adjust as they attempt to navigate the softened market environment.
Then came the extremely active 2017 Atlantic hurricane season, which saw hurricanes Harvey, Irma and Maria batter parts of the U.S. and the Caribbean, resulting in one of the costliest loss years on record for insurers and reinsurers.
Prices in the reinsurance sector increased at 1/1 2018 across the board, for accounts both with and without losses, with loss-affected accounts in the Caribbean experiencing increases of up to 40%.
“The price reversal is credit positive and will benefit reinsurers by boosting their top-line,” says Moody’s.
Adding; “Absent additional unexpected large losses in fourth-quarter 2017, we expect the major European reinsurers to be profitable on a full-year basis. However, we expect 2018 profitability to remain lower than pre-2012 levels owing to the extent of past price softening and the prolonged low interest rate environment.”
As a result of third-quarter 2017 catastrophes, Moody’s also expects demand for additional reinsurance protection to increase, as insurers analyse their reinsurance buying and potentially look to purchase more coverage to protect their earnings.
“The price increases, together with various efforts to reduce operating expenses, should enable reinsurers to benefit from improved combined ratios,” says Moody’s.
The financial services ratings agency does expect reinsurance price increases to continue in the next renewals, but warns that excess capacity will mitigate this, driven by the recent growth of the alternative reinsurance capital space.
