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Reinsurance lines “lagging” behind current pricing cycle: JMP Securities

18th September 2019 - Author: Charlie Wood

Analysts at JMP Securities have underlined the lagging of reinsurance lines behind the current primary and retrocession-led pricing cycle as one of the key takeaways from this year’s reinsurance rendezvous in Monte Carlo.

JMP SecuritesAnalysts say there are several reasons for this, but that it is somewhat unique as historical cycles go.

On the primary side, Decile 10 efforts at Lloyd’s, significant capacity reductions from several large E&S market participants, as well as evolving adverse loss cost trends in a handful of lines have combined for a noticeably improving primary market in many lines of business.

On the opposite end of the market spectrum in retro, JMP analysts state that the past two years of significant losses (and related trapped capital) resulted in less deployable capital year over year with investors in the market nervous at the prospect of a third loss-making year.

Analysts suspect that even a small-to-medium size loss event in 2019 would have an amplified impact on the market and that, simply put, many in the retro arena are in desperate need of a year where they can simply rollover 2019 capital into 2020 and not be faced with fresh losses and trapped capital that will force them to inject more new capital.

As for reinsurance, JMP believes it is benefiting modestly from rate increases at the primary layers (particularly for quota share), but wholesale reductions in ceding commissions, which had risen quite substantially in recent years, have yet to take place.

Additionally, adverse loss cost trends in some casualty lines (most notably excess casualty and professional liability) as well as the trickle-down effect of the tight retro market, should help the reinsurance market catch up in 2020.

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