Morgan Stanley analysts have emphasised that, despite expectations of an above-average hurricane season, the P&C reinsurance market maintains a positive outlook heading into 2025, thanks to a relatively stable pricing environment.
Analysts identify several key factors expected to contribute to pricing stability: “Given the strong profitability in 2023 and the strong ILS issuance thus far this year, we believe the supply of capital should be higher than the past, while demand continues to hold up.”
Additionally, they highlight disciplined underwriting practices, tight terms and conditions, and a supportive interest rate environment as further factors shaping the reinsurers’ landscape both this year and into 2025.
Morgan Stanley predicts a slight decrease in midyear renewal pricing, alongside continued tight terms and conditions. Reinsurers are likely to capitalise on this environment, supporting overall earnings growth in 2024 and beyond.
While there is an influx of capital in higher layers, pricing in lower layers remains disciplined. Expectations of severe weather are reinforcing overall property catastrophe pricing. Moreover, the anticipated rise in risk costs is expected to exert upward pressure in the long term.
“Another major support for the reinsurers is the higher for longer environment. Reinsurers tend to have an investment duration between 2.5 years to 3.5 years. As interest rates continue to remain high, we expect continued EPS support from higher fixed maturity and short term investment income,” Morgan Stanley concludes.
