Much of the hype around significant pricing gains for reinsurers at the January renewals has faded as demand overall was flat to marginally up, but hope remains for some higher demand from regional insurers focused on Florida and the Caribbean, as well as U.S. mortgage credit risk and other emerging lines of risk, according to Standard & Poor (S&P).
S&P said flood insurance was another growth opportunity, citing FEMA having just upped reinsurance cover for 2018 flood losses by $1.04 billion from last year.
“Given the magnitude of the losses suffered by National Flood Insurance Program (NFIP) in 2017, additional reinsurance purchases are quite possible, and reinsurance is likely to become a permanent fixture of NFIP’s risk-management philosophy.
“Further, NFIP reauthorization (likely to be extended until February 2018 as Congress deals with other priorities) could look to increase private capital participation. In addition, some primary insurers will look to increase their penetration beyond the NFIP, likely backed by reinsurance capacity.”
However, uptake of flood risk by re/insurers is expected to be gradual and disciplined within well-defined risk-appetites.
Further areas highlighted as having robust growth potential are the mortgage reinsurance sector, as well as newer lines such as cyber and terrorism risk.
The U.S. housing market has strengthened in recent years, driven by improved U.S. mortgage credit risk and underwriting standards and government-sponsored enterprises (GSEs) developing risk-sharing programs and offloading increasing amounts of risk, “as a result, many reinsurers are considering taking on or increasing their exposure to mortgage risk in the hope of benefiting from still-robust returns–and diversifying risk in the process,” S&P said.
The U.S. has taken the lead on cyber risk insurance globally, and insured cyber risk is expected to grow to up to about $14 billion by 2022.
In addition, after many in the industry suffered heavy losses in the 2017 record-setting natural catastrophes, could push insurers to increase reinsurance cover as they look to manage their capital positions under increasingly stringent regulatory capital requirements.
Furthermore, S&P said some re/insurers are looking to manage the impact of U.S. tax reform, which could increase utilization of third-party reinsurance directly from U.S. subsidiaries.
The current market environment – marked by increasing competition and abundant capital – has meant the reinsurance rate increases have failed to live up to the high-strung expectations of some hard-hit reinsurers, however, significant opportunity remains for reinsurers willing to seek out growth pockets and work with insurers who are seeking further opportunities for portfolio management.