While pricing has picked up over the past couple of years, Deutsche Bank analysts argue that the level of increases post-major events is not as large as it might have been several years ago and remains a challenge for reinsurers going into 2020.
While an oversupply of capacity and the resulting increase of competition has been a key driver of this, analysts note how pricing appears to be challenged even in markets where alternative capital is less relevant – suggesting it will likely take longer to recoup losses.
Analysts reference lower-than-anticipated price increases in the wake of the Fukushima earthquake and tsunami in 2011 and say they would not be surprised if the upcoming April renewals were to disappoint relative to current expectations.
Moreover, the Japanese market is not considered to be that highly impacted by alternative capital sources, so if the industry is already seeing pressure here then presumably it can expect to see even greater pressure on pricing post losses in the US/Caribbean- with the payback period clearly much longer.
Overall, DB analysts are expecting to see very modest price increases in January 2020. Key drivers of this are seen to be ongoing re-pricing of casualty lines and underlying pricing improvements in primary lines supporting proportional reinsurance rates.
Given the heavy losses from Faxai and Hagibis, analysts see April renewals as showing the greatest potential for strong price increases. That said, it could still be argued that the relative pricing power of the reinsurers has weakened in recent years, and as such, it is perhaps not as much as the reinsurers would like.
