Moody’s Investors Service holds a stable outlook for global reinsurance companies despite the impacts of third-quarter catastrophe losses, citing strong capital positions and the expectation of price hardening.
Global reinsurers are expecting price hardening at the upcoming renewals in light of Q3 catastrophe losses that are estimated to reach around $100 billion for the industry, expectations that are supported by the recent October, California wildfires.
According to Moody’s, its survey of reinsurance buyers shows that buyers are expecting to pay more for protection on loss-affected lines during the 2018 renewals, with nearly half of survey respondents expecting prices to rise by more than 7.5%.
Moody’s highlights the deterioration of reinsurance prices since 2012, but states pricing is now nearing a point of stabilisation and the firm expects prices to tighten across most property lines, especially in Florida and the Caribbean.
Brandan Holmes, a Vice President and Senior Analyst at Moody’s, commented; “Reinsurer balance sheets remain resilient, as reinsurers have maintained sizeable capital buffers and reduced exposure to property-catastrophe risk in line with declining price adequacy. Despite heavy losses in the third quarter, we still expect most rated reinsurers to be profitable for the full year.”
As a result of the improved pricing environment, Moody’s expects reinsurers to be more profitable, but warns that profitability will likely remain below pre-2012 levels, as a result of severe price softening, the low interest rate environment, and the influence of alternative capital.
Merger and acquisition (M&A) activity across the reinsurance industry, which has removed a number of smaller and weaker firms from the market – ultimately increasing the average credit profile of the remaining entities – also supports Moody’s stable outlook for reinsurers, and the rating agency expects incentives for M&A to persist in 2018.
Over the next 12-18 months, Moody’s feels that a positive outlook is unlikely, driven primarily by the fact its reinsurance ratings are positioned on a through-the-cycle basis, and because Moody’s only expects to see moderate price firming as a result of Q3 hurricane losses.
