Analysts at KBW have observed a supply-demand imbalance at the January 1 reinsurance renewals, which they believe will persist throughout 2020, especially for loss-impacted property catastrophe accounts.
The firm noted that reinsurance renewals were later than normal this year, including some placements that were not completed by year-end.
Pricing trends are considered to have reflected line-specific expected returns, which have mostly deteriorated enough to spur rate increases.
KBW also believes most commercial lines’ rate increases accelerated again in the fourth quarter of 2019, reflecting weakened underwriting margins, worsening loss trends, and lower interest rates.
International property-catastrophe renewal rates were flat to slightly down at the 1/1 renewals, while U.S. loss-free catastrophe business renewal rates were flat to modestly up, according to KBW’s data.
Following this pattern of significant increases on loss-impacted regions and accounts, analysts are anticipating further rate increases at the upcoming 2020 reinsurance renewals in April and June/July.
Pricing increases are forecast to be driven in particular by recurring Japanese typhoon losses and persistent loss creep on past Florida events.
Worsening liability loss severity trends and soft pricing over 2014 to 2018 are similarly driving a worsening loss experience that is pushing rates up for excess of loss liability reinsurance pricing, and down for quota share policies’ ceding commissions.
Looking ahead, KBW also expects reinsurance to start benefiting from primary rate increases on quota share policies.