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Morgan Stanley expects “sustained” reinsurance pricing ahead of renewals

19th April 2021 - Author: Matt Sheehan

Analysts at Morgan Stanley are expecting reinsurance rate increases to prove more sustainable as they examine pricing trends ahead of the mid-year renewals.

market growthThough discussions of pricing at Jan 1 and Apr 1 renewals have been characterized as slightly disappointing, Morgan Stanley noted that pricing was generally up across the board and remained fairly strong.

Reinsurance pricing has somewhat lagged that of the primary market, but analysts expect sustained price increases for reinsurers on the back of several factors.

These include elevated catastrophe losses, concerns on casualty prior year reserves, higher litigation costs and social inflation, COVID uncertainty, and the low investment yield environment.

“Though we see more sustainability of pricing in the sector, margin gains are not expected to be as pronounced as the primary carriers for some of those previously disrupted reasons,” Morgan Stanley stated.

Looking at the re/insurance pricing cycle more broadly, analysts are expecting a deceleration in rate increases soon, perhaps even by the mid-year renewal period.

But unprecedented losses from Winter Storm Uri in Texas, as well as other global events such as Storm Filomena in Spain and Tropical Cyclone Niran in Australia could help to maintain pricing momentum for a while longer.

For primary commercial lines, Morgan Stanley expects pricing increases to remain positive over the next year, given persistent loss trends, casualty reserve issues and a depressed interest rate environment.

And while analysts acknowledged that rate growth is “nearing a peak,” they still believe that the higher levels of rate earning will continue to outpace loss trends resulting in margin improvement into 2022.

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