Speaking in Howden’s Q3/9M (re)insurance sector review, David Flandro, Head of Strategy Advisory, Howden Tiger, has suggested that for the first time in a long time, both the insurance and the reinsurance sector are poised to exceed their cost of capital.
With the (re)insurance sector ending Q3 with positive momentum, Flandro highlighted that one of the outcomes of this environment is stronger underwriting results, adding that almost every company under the firm’s coverage reported a lower loss ratio, with a few exceptions.
“This was due in part to natural catastrophe losses. Although it was also due to generally favourable underwriting and pricing trends. There was just one caveat. Reserve releases were less than they were in the third quarter of last year.”
Flando observed that all of these factors, lower catastrophe losses, strong premium trends, and reserving movements, helped carriers to beat, in the main, consensus estimates in the third quarter.
Continuing on this theme, Flandro underlined the positive movements in carrier share prices generally, and reinsurer share prices in particular.
He said, “This is partly a result of more favourable attachment points and coverage conditions for reinsurers visa vie insurers… the pricing and premium tailwind is helping everyone, and then this feeds through to economic value add.
“For the first time in a long time, it appears that both the insurance and the reinsurance sector are poised to exceed their cost of capital.”
Flandro remarked that the aforementioned elements, especially the underwriting gains in 2023, “lend optimism to the idea that capital will increase over the year.”
He also noted that Howden saw a marginal increase over the year to nine months, adding that the firm anticipates an increase for the full year.
“Sector results were broadly positive. The sector was stable, and the outlook was good in the third quarter,” Flando said.
He concluded, “Capital growth coupled with stronger underwriting margins and higher interest rates meant that profitability looked strong.
“However, there is some unpredictability emerging in longer tail lines, not least D&O and other casualty lines. This is offset in part by the increase in running yields on the float that people receive when they underwrite.
“Full year earnings targets remain intact, and we anticipate that the sector will exceed its cost of capital this year for the first time in many years.”
Speaking during the same review, Wade Gulbransen, Head of North American Reinsurance at Howden Tiger, said that as negotiations intensify ahead of the January 1st, 2024, reinsurance renewals, the firm sees the market continuing with both price and coverage into next year. Read more on that here.
