Analysts at Morgan Stanley estimate that rate increases of between 1% to 5% across the P&C sector, as a result of record levels of catastrophe losses experienced in the third-quarter, could raise earnings by an average of 6.29%.
Insured catastrophe losses in the third-quarter are expected to total around $100 billion, making it one of the costliest quarters ever recorded for losses from natural disaster events.
Following the impacts of the three devastating hurricanes, strong earthquakes in Mexico and the California wildfires that occurred at the start of the fourth-quarter, P&C managements are “more bullish on pricing,” explains Morgan Stanley, in a recent P&C market note.
Increasingly, says Morgan Stanley analysts, more and more primary insurers and reinsurers’ management teams are expressing optimism on commercial P&C pricing, in light of record losses, higher risk perceptions, and years of declining pricing and reduced investment returns.
“We expect double-digit property cat reinsurance pricing increases and more gradual improvements in primary property insurance,” says Morgan Stanley.
Overall pricing increases of 1% to 5% could improve core combined ratios by 1% to 5%, which, could in turn increase earnings by ~6.29%, on average, and for the firm’s in Morgan Stanley’s coverage.
Analysts also expect a more positive pricing outlook to drive improved investor sentiment on the group, which, according to Morgan Stanley, is yet to be fully discounted in company stocks.
Since the huge level of catastrophe losses in the third-quarter the need for improved pricing metrics has been at the forefront of industry discussions, with many reinsurers hoping for big rate increases at the upcoming January 1st, 2018 renewals season.
Only time will tell just how much rates increase at 1/1 2018, and whether any rate increases will be sustainable, given the excess capacity in the space and the reported abundance of third-party capital sat on the sidelines.
