Analysts at JP Morgan remain confident that the overall P&C pricing environment should remain positive for P&C (re)insurers in 2022, providing attractive growth opportunities and remaining ahead of loss cost inflation.
In particular, reinsurance pricing should be buoyed by another year of substantial losses and continued weak sub-sector ROE, JP Morgan says, with rates expected to be similar or slightly better than last year.
The investment bank notes that the reinsurance sector is still looking to repair its returns after a period of historically weak pricing, losses from liability lines and due to the high levels of natural catastrophe losses.
Any need to raise allowances for natural catastrophe budgets could further pressure prospective ROEs, adding to the need to raise pricing.
Primary insurers have also benefitted strongly from momentum in commercial P&C pricing, analysts added, but any slowing of the rating trends here and indications of inflationary pressures could also raise demand from insurers looking to reduce retention of risk and purchase reinsurance in certain affected product lines.
Additionally, its not expected that alternative capital will flood the industry and pressure pricing as it has done in previous years, as JP Morgan notes that the proportion of capital provided by alternative capital has remained fairly flat since 2018.
This trend is likely to continue due to the recent poor track record of ILS returns following a heightened period of natural catastrophe losses, which has impacted demand for this business from sources of capital that had been looking for diversified and differentiated returns.
What’s more, uncertainty over claims costs due to inflation and an uncertain macroeconomic outlook has also contained alternative capital supply.
And at the same time, JP Morgan argues that the higher interest rates and expectations of higher yields also potentially reduce the attraction of the relative ‘spread’ earned on alternative capital.
