Keefe Bruyette & Woods (KBW) confirmed their previous “cautious” stance on Bermudians amidst January renewals that showed weak industry-wide pricing power.
Analysts cited a disappointing renewal season, with a risk-adjusted average rate increase of about 5% – which dashed expectations for Bermudians after the massive $136-140 billion of estimated 2017 catastrophe losses.
“We remain cautious on most Bermuda reinsurers, because we think that 1/1/2018 renewals demonstrated the reinsurance industry’s lack of pricing power even in the wake of very material catastrophe losses that – assuming a slightly different path for Hurricane Irma – could have easily been far worse,” said KBW.
Reinsurance rate increases mostly matched pessimistic expectations that KBW had warned would follow the initial post-catastrophe pricing “euphoria” and price increases moderate.
Analysts had previously recommended that investors stay on the sidelines of the Bermudians until the final pricing data for the January renewals comes in.
Willis Re said U.S. property catastrophe reinsurance rates rose 0-7.5% on loss-free accounts, but by only 5-10% on loss-impacted accounts.
European reinsurance rates were flat, although this is better than 2017’s rate declines, and Asian rates were flat on a risk-adjusted basis, and despite better pricing data points, aggregate property catastrophe rates are still hovering near early-2000’s levels.
But it’s not all doom and gloom for the market, with modestly-rising casualty and specialty insurance rates expected in response to pressures following years of compounding rate decreases.
According to KBW, Exposure unit growth should boost premium brokerage revenue volumes, and imply more upside to broker than carrier margins.
