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Positive momentum suggests a shift towards more desired risk-adjusted pricing: S&P

25th June 2019 - Author: Luke Gallin

S&P Global Ratings maintains that it would not characterise the reinsurance market as a hard one, but more of a firm one as improved rate momentum in both April and June signals a shift towards more desired risk-adjusted pricing.

Positive2019 renewals have been fairly promising, with reinsurance rate movement throughout the year being more positive than price reactions witnessed in 2018. According to S&P Director and Lead Analyst, Ali Karakuyu, modest rate increases during the January renewals have been eclipsed by more pronounced improvements in both April and June.

Despite the impacts of both 2017 and 2018 catastrophe events, loss creep from some of these events, most notably typhoon Jebi, continued to hit the sector in 2019, which hindered rate momentum at the key January 2019 renewals season.

Discussing the reinsurance industry during a recent S&P webcast, Karakuyu said that this confirms the regionalisation of the reinsurance pricing trend, adding that market dynamics mean that the phenomena of market-wide increases after large loss events is no longer supported.

“We can’t characterise the market as a hard one, but more of a firm one,” said Karakuyu, adding that “positive momentum is signalling a movement towards more desired risk-adjusted pricing.”

While S&P expressed some positivity around the reinsurance sector in 2019, maintaining its stable outlook which it states is supported by strong levels of capitalisation and a continuation of disciplined underwriting, Karakuyu stressed that it remains a challenging marketplace underpinned by strong sector competition from alternative capital.

Alternative, or third-party reinsurance capital has taken a more cautious stance in light of recent losses, and Karakuyu said that it’s fair that this has resulted in a trend of capital providers looking for better quality managers.

However, he notes a significant amount of alternative capital sat on the sidelines waiting for market conditions to improve, which further supports the commitment and permanence of the capital markets within the global reinsurance market.

Global reinsurance companies are struggling to meet their cost-of-capital requirements, and it’s expected that market players will push hard to achieve the increases they are capable of as they look to boost returns in a pressured marketplace.

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