Peel Hunt, a specialist in corporate broking, advisory, research, sales and trading, has reported that first quarter results for Bermudian reinsurers suggest that rates are continuing to firm across a broad line of underwriting classes, but that it remains unclear whether this trend will continue.
Whilst rate firming across both reinsurance and insurance lines confirms Peel Hunt’s view that the cycle is starting to turn and margins are likely to expand, the extent of rate increases, particularly in Property and Casualty (P&C) reinsurance, is not sufficient to warrant a material increase in exposures.
Rate momentum is expected to continue throughout June and July as more loss-affected U.S business renews, but pricing trends following this are uncertain.
Peel Hunt found that reinsurance underwriting margins do appear to be improving, as some areas are experiencing rate increases in the low teens with stable terms and conditions, particularly loss-affected U.S property.
Specialty re/insurance across both property and casualty is also experiencing a low to mid single-digit firming of rates, suggesting that rates are improving across a broad range of underwriting classes.
However, the swift reload of alternative third-party capital has capped the extent of rate increases, which, coupled with rates pulling less strongly than anticipated, suggests that it is no longer a viable underwriting strategy to use benign cat years to subsidise losses in specialty lines.
Peel Hunt suggested that a sustainable firming of reinsurance rates post event may also not fully materialise, which would encourage a more disciplined underwriting approach across the whole portfolio, as companies can no longer justify sub-par returns elsewhere.
Overall, Peel Hunt considered rate increases to be materialising at a more promising rate than expected, and predicted that rates will at least hold the line into the second half of 2018 and 2019, with further upward momentum also possible.
