In the upcoming 4Q23 results for the insurance sector, JMP Securities anticipates positive outcomes driven by robust mark-to-market tailwinds on investment portfolios and minimal catastrophe losses.
The focus, however, remains on forward-looking factors, including loss cost inflation, casualty reserve stress, primary pricing sustainability, and ongoing market disruptions in personal lines.
Catastrophe activity in 4Q23 was relatively light, with incidents like flooding and convective storms in the Eastern and Southern U.S., Hurricanes Norma and Otis in Mexico, and windstorms in Europe.
Reinsurers are expected to benefit from higher retentions set at recent renewals, while primary insurers may experience concentrated losses.
Casualty lines are facing increased scrutiny due to social inflation driving concerns about reserve deficiencies. The industry has been addressing these concerns since the renewal discussions in Monte Carlo, with a particular emphasis on U.S. casualty, especially for the 2015-2019 accident years.
The resurgence of social inflation post-pandemic has led to uncertainties regarding the adequacy of reserves in the 2020/2021 years.
While these years have been generally viewed favourably, there’s a risk of premature reserve releases or overly optimistic loss picks.
The impact on the casualty reinsurance market includes declining ceding commissions, possibly reflecting efforts to bolster reinsurers’ margins and encourage cedants to push for higher primary pricing.
In property markets, stability prevails following an orderly January 1 renewal marked by substantial changes in pricing, terms, and conditions during the 2023 reinsurance renewal.
Despite significant price increases, the most notable changes involved higher attachments and tightened terms & conditions.
This strategy proved effective, as reinsurers posted strong returns despite over $100 billion in catastrophe losses. The industry appears determined to maintain these changes, with little-to-no concessions noted at the recent renewal.
Pricing trends suggest a flat to slightly upward trajectory, with the U.S. experiencing relatively stable conditions and Europe witnessing more pronounced increases, partially attributed to catch-up from the previous year’s muted movements and reactions to various catastrophes.
