RBC Capital Markets has reported that, after several years of decline, 2018 pricing for European reinsurers is on the rise, with companies getting back to near term earnings growth, largely driven by Property and Casualty (P&C) business.
RBC found that P&C reinsurance drove earnings growth as better-priced premium earned its way into business, and noted that combined target ratios for 2018 are improving from the 2017 normalised level.
Additionally, mid-year renewals should show even stronger increases due to a higher weighting to loss-affected business that should exhibit higher price increases year on year, and April renewals are also expected to show low-single-digit percentage price increases.
The report also forecast 6-8% earnings growth for Europe’s big four reinsurers (SCOR, Hannover Re, Swiss Re, and Munich Re), and observed that their capital levels are all well above minimum thresholds, with none of them suffering an overall loss in 2017 despite major catastrophe losses of more than $100 billion.
However, RBC suggested that despite strong near-term earnings growth and healthy capital levels for traditional reinsurers, the long-term industry outlook remains unclear.
Moreover, the report indicates that it is likely to take some time to determine an appropriate clearing price for reinsurance given the level of new capital that has entered the industry in recent years.