Analysts at Keefe, Bruyette & Woods remain moderately optimistic about 2019 reinsurance pricing following meetings with numerous underwriters and brokers.
Virtually everyone KBW met expected steadily rising reinsurance pricing over the course of 2019, reflecting declining supply and rising demand, which could extend into other lines, particularly the retro-dependent Lloyd’s market.
Participants anticipated the particularly-late January 1 reinsurance renewals’ rates to come in roughly flat or up modestly year on year.
1/1 renewals largely comprise European and national U.S accounts with few or manageable 2018 catastrophe losses and many 1/1 reinsurance renewal quotes were issued in November, preceding both the California wildfire losses and Markel CATCo’s disclosed regulatory inquiries.
KBW says retro pricing is definitely “tighter,” reflecting 2018 losses and some significant Insurance Linked Securities (ILS) fund redemptions that is, unlike last year, not being replaced by newly raised funds.
Regarding subsequent property catastrophe reinsurance renewals’ pricing, analysts say most executives were cautiously optimistic about the prospects for significant later renewal dates.
Both Japanese renewals and Florida/Southeastern U.S renewals should include a higher percentage of loss-impacted accounts.
As for rates on other lines, KBW says it did not sound like other reinsurance lines’ renewal rate increases are accelerating much from low single-digit levels, although ceding commissions are coming down a little.
Rising retro rates are likely to ripple through the Lloyd’s market; Lloyd’s insurers are reportedly paying higher rates to maintain consistent programs year on year, so Franchise Board business plan reviews will probably uncover less free capacity than was originally expected.
The executives KBW met with reportedly all agreed that Franchise Board discipline is driving better pricing at Lloyd’s and expect that trend to persist in 2019.