In the world of reinsurance, analysts from Peel Hunt highlight the current trends and first-half results, pointing towards a market that is gearing up for significant growth.
The reinsurance industry has experienced a reduction in dislocation compared to the start of the year, due to a well-organised US renewal process.
However, this has not resolved the supply-demand imbalance, and reinsurers are preparing for a surge in insurer demand at the 1/1 2024 renewals, the report noted.
During the first half of 2023, specialty reinsurance premiums experienced robust growth in the low teens. Underwriting margins have improved, and non-annualised returns on equity (RoEs) have met the market’s expectations.
The rising flight to quality has enabled renewal volumes to surge for reinsurers committed to putting capital to work. As a result, premium growth is outpacing the natural rate and inflation-driven exposure growth.
The property market continues to experience a hard market environment, both in the reinsurance and specialty insurance sectors. Reinsurers have seen rates reach adequacy in the US property catastrophe market, while Europe still needs further rate hardening.
However, reinsurers are tapping into attractive property conditions in the insurance market through quota share treaties. Meanwhile, there are some signs of rate weakening in selective subclasses of Casualty insurance in the primary market.
Despite the positive outlook for growth, no significant new capital has entered the reinsurance market except for a $1.5 billion capital increase by Everest during 1H23.
However, traditional reinsurers are now willing to commit more capital to property catastrophe reinsurance as rate adequacy has been achieved in the US. Risk-adjusted returns are also proving to be attractive.
Analysts predict a positive outlook for rates in the reinsurance market, driven by pent-up insurer demand, the need for improved rate adequacy in Europe, ongoing inflation, rising climate change risk awareness, and the absence of substantial new reinsurance capital entering the market.
Additionally, attractive growth opportunities are available in the US excess and surplus (E&S) market, offering further impetus for growth.
Reinsurance companies are optimistic about the future, expecting property reinsurance rates to remain firm at the 1/1 2024 renewals, buoyed by the continued supply-demand mismatch and persistent inflationary pressures.
