Although reinsurance pricing improved to some extent over 2018, abundant levels of underwriting capacity continue to absorb any increase in reinsurance demand, meaning rates are not expected to improve significantly at 1 January 2019 renewals, according to Fitch Ratings.
Rates improvements were greatest at the January renewals in 2018, but subsequent renewals have generated increasingly flatter rates, Fitch noted, with data from JLT Re indicating that rates remain about 30% below 2013 levels.
Absent any large catastrophe losses over the rest of 2018, significant near-term rate increases will be limited to loss impacted accounts, while loss-free business could face some downward pressure, the rating agency said.
Nevertheless, casualty rates are expected to be up slightly at 1/1 renewals in order to offset shrinking reserve redundancies and loss cost inflation in certain liability lines like U.S commercial auto, while ceding commission are likely to continue to move lower.
Fitch also claimed that excess reinsurance capacity is likely to be an ongoing reality as capital markets look set to continue growing in 2019 against the backdrop of significant insurance-linked securities (ILS) issuance in 2018 to date, exacerbated by rising interest rates.
Reinsurance capacity provided by the capital markets totalled US $98 billion at the end of H1 2018, which was up 10% on the total from end-2017 and nearly double the amount at end-2013.
Over half of the H1 2018 capacity provided by alternative capital was from collateralised reinsurance, Fitch said, while catastrophe bonds were the second-largest class with issuance of over $7 billion.
The range of geographies and perils covered by alternative capital also continues to grow, and outstanding bonds reached a record high of $30 billion at the end of H1 2018, with the remaining balance of ILS capital held in sidecars and industry loss warranties.