Fitch Ratings has predicted that the positive reinsurance pricing trends of the January and April renewals are unlikely to be sustainable in the long-term, with price increases expected to level out at upcoming mid-year renewals.
Reinsurance pricing finally bottomed out and turned positive in response to the record-breaking catastrophe losses in 2H17, but rate increases were not as sizable or as widespread as many market participants had hoped for.
Muted increases at the April renewals also suggest that cyclical price changes following severe catastrophe-loss years will be limited in future, as traditional reinsurance capital faces growing competition from alternative capital sources.
Fitch expects pricing at the June and July 2018 renewals to be flat, with mid-single digit increases anticipated in some lines, as surplus capacity continues to dampen rate increases.
The June renewals primarily relate to Florida property and catastrophe (P&C) risk, and will be particularly telling, as these lines were significantly affected by Hurricane Irma.
U.S P&C reinsurance pricing at April renewals only saw increases around the mid-single digits for loss-free accounts, down from high single-digits at January, although there was some increase in demand and underlying exposure growth.
Fitch observed that rate increases thus far have been tempered by abundant capacity, strong traditional capital, and alternative capital sources that have proved capable of reloading much quicker than anticipated.
In casualty reinsurance, pricing turned slightly positive in 2018, with ceding commissions easing downward from the high-30% level into the low to mid-30% level.