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Re/insurance pricing increases could hold for two years: Peel Hunt

5th July 2019 - Author: Matt Sheehan

Underwriters are confident that re/insurance pricing increases will be sustainable regardless of the outcome of the 2019 hurricane season and should hold for two years, according to Peel Hunt.

profit-growthThe firm observed that underwriters generally appear to be pleased with how the rate cycle is evolving, given the absence of knee-jerk reactions and the perceived sustainability of rates going forward.

Nevertheless, whilst the rate momentum is positive, many underwriters argue that it could go further and are looking to gain further increases in 2020.

This is particularly true in lines such as specialty, where Lloyd’s and the PRA are trying to support returns across the Lloyd’s Market.

Peel Hunt believes that short tail underwriters are more geared to this rate momentum, although large casualty writers such as Beazley and Hiscox are also benefitting.

In the Lloyd’s Market, underwriters have reported healthy mid to high single digit rate increases in marine, aviation, property and engineering over the past six months.

Even casualty is starting to see meaningful rate rises as market discipline returns, analysts noted, with credit & political risk and cyber being the only areas of rate softening.

The U.S. property catastrophe reinsurance renewals were also better than Peel Hunt had anticipated, particularly in Florida where rate increases are finally coming through after two years of heavy losses, claims surge and loss creep.

Floridian quality cedants are seeing material rate increases on both loss hit and loss free programs, while California is repricing following two years of wildfire loss and a reduction in insurance-linked securities (ILS) capacity.

Peel Hunt believes underlying margins in the market will improve alongside continued rate increases, with some underwriters claiming that the fully loaded property cat reinsurance combined ratio may improve from 85-90% to 80% without any significant change in risk appetite.

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