As per a report from analysts at BMO Capital Markets, a prominent reinsurance broking executive from Howden Tiger has suggested property-catastrophe reinsurance pricing power will fall 5-10% at mid-year contract renewals.
The comments from the Howden Tiger executive were reportedly made at the Association of Insurance and Financial Analysts (AIFA) conference, which took place on Monday the 4th of March.
Positively for re-insurers, BMO said that the same executive predicted that organic growth/demand will grow by low double-digits at mid-year due to a combination of underlying property-replacement cost inflation, population growth, etc.
“The broker also said that in recent weeks, some reinsurers appeared willing to write lower-down in the risk tower (i.e. get closer to risk, after years of moving away from risk), which makes sense to us given property-CAT RoE returns have been ‘adequate’, meaning well above 20% on a modelled basis,” BMO said.
Speaking on the AIFA event comments, BMO’s analysts said, “Should this prediction come to fruition, it shouldn’t come as a major surprise to most investors who we estimate appreciate property-CAT pricing power is closer to its peak, assuming normal weather loss activity.
“That said, we do estimate a higher end of the range 10% pricing decline could put incremental EPS pressure on some reinsurance segments within reinsurance stocks.
“We also point out that supply/demand dynamics within the reinsurance marketplace remain tight, meaning should there be a major property loss, we estimate pricing would re-accelerate.”
