Menu

Reinsurance News

No sign pricing will bounce back quickly as reinsurance market nears bottom: Deutsche Bank

9th June 2017 - Author: Luke Gallin

The January 1st, 2018 renewal season could see pricing in the reinsurance market finally reach the elusive and much discussed bottom of the cycle, with the question then turning to how long the trough will be, suggests analysts at Deutsche Bank.

Challenges aheadDeutsche Bank has completed its seventh Global Financial Services Conference in New York, U.S., which included 85 companies, of which 15 were European insurers, and or reinsurers. Perhaps unsurprisingly, Deutsche Bank explains that of the reinsurance meetings it attended, the state of the marketplace, and more specifically the pricing environment, was a common theme.

“It is a common view that the current softening will ease and that price levels will stabilize, but there are still factors that are weighing negatively on pricing.

“Overall our take away from the discussions with the reinsurers is that July renewals could see still some minor decline in pricing and that January 2018 renewals could see the trough.

“The key question then would be how long the trough could be,” warns Deutsche Bank.

Following the recent June, 1st 2017 renewal season the broker community and reinsurance industry analysts and experts have discussed the continuation of rate declines across the majority of reinsurance business lines. In fact, reinsurance broker JLT Re noted that rate declines had accelerated at the most recent renewals, averaging a 5% decline, and down by as much as 10% in places.

And while generally rate declines have moderated in recent times, reinsurance pricing for Florida business now sits around 40% down on 2012 levels and only 10% above the previous cyclical low of 1999/2000, warned JLT Re.

So it could be that rates still have someway to fall before pricing in the reinsurance market hits the bottom, especially given the low loss environment and persistent inflow of alternative reinsurance capital, which continues to drive intense competition and contribute to rate declines, particularly in the property catastrophe space.

But should January 2018 signal reinsurance pricing hitting the cyclical bottom, Deutsche Bank states the next question is how long the trough will persist before the market starts to harden, ultimately leading to reinsurance price increases.

“As long as there is no major capital impact, we have no reason to believe that price levels should recover anytime soon and would expect a scenario where prices stay at low levels or even deteriorate slightly further if loss severity remains below historical averages,” says Deutsche Bank.

Catastrophe losses did pick up in 2016 when compared with previous years, despite remaining below the ten-year average, and the benign activity coupled with an abundance of capacity suggests an unprecedented event, or series of very large events might be required to remove a sufficient amount of market capital, ultimately leading to a turn in the market.

As positives for the market, Deutsche Bank analysts do note that casualty prices appear to be broadly stable, and that the reserve release cycle for the sector is nearing an end. Furthermore, proportional business is still showing signs of resilience and profitability levels for the sector look to be edging closer to cost of capital levels, says Deutsche Bank.

However, analysts warn that property prices look to be falling further, albeit at a slower pace, and that increased returns on the investment side of the balance sheet could result in the acceptance of lower price levels.

Times remain extremely challenging for reinsurers and the market landscape shows little sign of changing anytime soon. It will be interesting to see if rates do stop falling or at least only report minimal reductions at the January 2018 renewals, but the current state of the market and the fact that in Florida rates are still 10% above the previous cyclical low, suggests profitability across the reinsurance industry could have further to fall still, fuelling additional pressure on earnings.

Print Friendly, PDF & Email

Recent Reinsurance News

Getting your daily reinsurance news from Reinsurance News is a simple way to receive only the reinsurance industry news that matters, delivered directly to your email inbox.

  • Only email is mandatory, but the more you tell us about yourself the better we can serve you in future!
  • This field is for validation purposes and should be left unchanged.

By submitting the form you are giving your consent to be emailed by us.

Read previous post:
Markel reorganises to create new insurance unit, Markel Assurance

Markel Corporation has established a new insurance unit called Markel Assurance that sees the combination of the re/insurer's Wholesale (excess...

Close