Price increases in non-life reinsurance in 2018 are expected to be short-lived despite record-level 2017 catastrophe losses due to strong market competition as third-party capital continues to flow into the re/insurance space, according to Berenberg analysts.
Berenberg explained that as third-party capital enters the re/insurance space “organic capital piles up and more sophisticated models potentially eliminate price cyclicality and lower margins.”
The trading environment is forecast to remain challenging, with the pressure mounting after a number of years of soft market conditions in large-ticket lines now combined with heavy 2017 losses.
Berenberg analysts said insurers are responding to increased market pressures by looking for growth opportunities in niche market areas where competition is lower and higher margins are achievable; “these are typically niches where specific knowledge is required or in areas such as SME insurance where premiums are lower and growth and profitability need to be backed by a strong distribution and infrastructure.
“Trends in these markets are clearly much more attractive than in traditional lines and offer attractive prospects.”
Listed Lloyd’s insurers Hiscox, Beazley and Lancashire are rated by Berenberg as Buy, Hold and Sell respectively.
The valuation discrepancy is due to having different strategies outside of Lloyd’s and thus very different investment cases, Berenberg said.
