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Moody’s expecting stronger reinsurance sector profitability in 2019

11th June 2019 - Author: Matt Sheehan

Analysts at Moody’s Investor Services are anticipating stronger reinsurance sector profitability in 2019, supported by significantly higher pricing in the property catastrophe market.

profit-growthThe firm believes that reinsurers are entering the 2019 hurricane season with solid capital positions and should be able to comfortably withstand any potential losses arising from hurricanes.

Reinsurance capital has also remained largely steady despite nearly $240 billion of total insured catastrophe losses over the previous two years, it noted.

These losses have been accompanied by significant adverse loss reserve development from Florida hurricanes and Japanese typhoons, which have driven reinsurers to recalibrate catastrophe assumptions related to escalating loss costs and underappreciated risk exposures.

Additionally, Moody’s obeserved that alternative capital has not flooded the reinsurance market with further capacity due to adverse development from the 2017 and 2018 events, creating a considerable amount of trapped collateral that cannot support new business.

The poor performance of insurance-linked securities (ILS) over this time frame has also caused investors to withhold allocating more funds to the asset class.

Moody’s posits that this combination of factors has tightened reinsurance capacity and will result in significantly improved pricing at the June and July renewals, with a strong focus in Florida, as well as broad-based pricing improvements in primary lines.

Profitability should also be supported by a near-normal Atlantic hurricane season, which has been predicted as the most likely scenario this year by the NOAA and other weather research organisations.

However, Moody’s cautioned that the presence of competing climate factors has created more uncertainty around the outcome of predictive models, and noted some potentially volatile factors, including above-average sea-surface temperatures and a strong West African monsoon.

On average, forecasts call for around 13 named storms during the 2019 season, with about six expected to become hurricanes, three of which could potentially reach major hurricane status.

Projected storm activity is slightly above the 1981-2010 median and long-term average, but the number of hurricanes forecast is in line with historical norms.

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