Deutsche Bank holds a negative outlook for January 2019 reinsurance renewals and does not expect pricing for July to gain significant momentum.
The company cites an expectation that 2018 Q2 losses will be underestimated by the markets – despite a quiet quarter for natural catastrophe – while pricing data should support its view that reinsurers’ pricing power is gone.
“We believe that a few weather events (especially severe weather events in the U.S. from late winter storms, as well as tornado and hail events) will lead to negative effects within reinsurance accounts. We expect individual natcat budgets to be utilized by 40-50%, leading to combined ratio impacts of 2.9-3.5% within our estimates.”
Deutsche believes man-made catastrophes could also play a bigger role and factors up to 4.5% within its estimates.
Additionally, positive seasonality effects from the dividend season are anticipated, as well as a tailwinds from a slightly stronger USD, which should leave Q2 profit levels above the normal run-rate.
Deutsche epects July renewals reporting to confirm its cautious view on pricing and do not expect pricing to gain significant momentum from there, suggesting that pricing will be insufficient to reimburse for 2017 hurricane losses.
“Up until April renewals, we expected the market outcome to be broadly in line with our expectations. However, we no longer expect improving pricing momentum for July renewals, but rather a stable pricing outcome at the levels seen during January/April renewals.”
Key takeaways from Deutsche Bank’s New York financials conference were mixed in this respect, the company says. Reinsurers were in agreement about some price improvements across loss-affected lines, however the tone regarding potential improvements was more subdued than expected.
This suggests, however, that reinsurers are not able to push through further material increases, despite last year’s insured market losses of over $100 billion. Indeed, total reinsurance capacity at the end of 2017 was back at record levels as traditional capacity offset the 2017 losses and alternative capital was refilled.