Analysts at Moody’s Investors Service expect demand for reinsurance protection to remain strong in 2024 but warns that while reinsurers have scope to push through further price increases, as competition intensifies in the sector, prices will likely peak this year.
Moody’s is the latest to predict a peak in reinsurance pricing in 2024, following strong rate increases in recent years, notably in 2023 which saw some of the steepest increases in the property catastrophe space for decades.
At the January 1st, 2024, reinsurance renewals, prices continued to rise albeit less so than a year earlier, and the outcome of 1.1, according to Moody’s, suggests that sellers have scope to push through additional modest price increases at the April and mid-year renewals, particularly in property lines.
But despite continued discipline from reinsurers, a trend Moody’s expects to persist, analysts state that reinsurance prices will “likely peak as competition intensifies”.
At the same time, stronger earnings in 2023 are encouraging some players to expand capacity and take on more risk, and Moody’s feels that the positive results could also lead to greater inflows of alternative reinsurance capital after a somewhat subdued period for the sub-sector. All of this, say analysts, would make supply demand dynamics less favourable.
“We therefore expect reinsurance XOL prices, notably in property catastrophe lines, to reach their high point before the end of the year, absent major catastrophes. However, property reinsurers’ underlying earnings should remain stronger than pre-2023 provided they maintain higher attachment points and strict policy terms and conditions,” says the ratings agency.
As reinsurers continue to report their full year 2023 financials, it’s become clear that many achieved strong growth in P&C on the back of rate momentum and structural changes, including a shift away from frequency events as carriers have been eager to serve as shock absorbers rather than picking up losses described as more suited to the primary market.
This year, Moody’s expects P&C reinsurance premium growth to continue as higher insured values and elevated risk perception amid consecutive years of more than $100 billion in insured catastrophe losses, supports demand for coverage.
Interestingly, Moody’s expects this solid growth to occur despite forecasting that economic growth in the G-20 countries will fall to 2.1% on average in 2024 from 2.8% last year. This trend is expected to slow demand for primary insurance but not for P&C reinsurance.
“Continued albeit slower growth in primary insurance premiums will support reinsurers’ quota share programs. Demand for excess of loss (XOL) property reinsurance – under which reinsurers cover losses that exceed a specific predefined limit – will also rise, in line with an inflationary increase in insured valuations.
“At the same time, primary insurers will continue to refine their catastrophe models to reflect above average catastrophe claims in six of the last 10 years. This will drive an increase in projected losses, and encourage primary players to buy more XOL reinsurance cover to protect themselves against “tail risks” – extreme losses that could lead to significant capital erosion. US demand for catastrophe XOL reinsurance remains strong, and will grow by as much as 15% this year, according to Deloitte,” says Moody’s.
Outside of property, Moody’s also expects demand for casualty reinsurance to remain solid, with buyers showing greater interest in facultative covers as they explore alternative ways of lowering volatility.
“Beyond traditional property and casualty lines, demand for cyber reinsurance will remain strong amid increased awareness of cyber risk and continued growth in the primary cyber market. However, premium expansion will be partly offset by falling prices after recent sharp increases, reflecting improved underwriting,” says the firm.
The message from analysts seems to be that reinsurance pricing will peak at some point this year, but of course, the outlook could all change if the wind blows in the wrong direction later in the year. Secondary perils, such as floods and wildfires and severe convective storms drove insured losses in 2023, and if it’s a similar story this year with the addition of a major landfalling hurricane in the U.S., supply / demand dynamics could shift again.
