As the industry meets in Monte Carlo for the first time since the end of the pandemic, analysts at Peel Hunt suggest the reinsurance market outlook is improving ahead of the key January 1st, 2023, reinsurance renewals.
The first half of the year results from specialty re/insurers and the rate commentary remain very positive, says the firm, with the reinsurance market seeming to be going through capacity constraints as some reinsurers exit the property catastrophe class.
It expects this will drive ongoing rate increases into next year as demand for reinsurance cover rises but the supply of capital eases.
“Whilst property catastrophe reinsurance is a risky and capital-intensive class, reinsurers suggest that rates are now starting to reward taking on this volatility,” analysts said.
Commenting on trends in the UK, analysts note that the UK insurance sector is up 5% in the past week, but still down 2% in the past month, although there has been a recovery in the performance of Lloyd’s insurers. Although, motor and life remain mixed as the market grapples with the impact of claims inflation and financial market volatility.
Within personal lines, analysts observe that insurers are using reserve buffers to absorb inflation on prior-year open claims whilst at the same time increasing loss picks on current year claims, which they say leaves less to release from reserve buffers to support earnings in 2022.
“While it drags down current year earnings, this is a sensible management action to take in order to preserve the quality of capital and avoid reserve additions down the line,” say analysts.
Additionally, Peel Hunt believes motor pricing will start to react to damage repair inflation in the remainder of the year, supporting motor premiums and margins while rising interest rates will start to boost investment income into 2023.
Specialty Life back book consolidators and annuity underwriters are increasingly bullish about the recovery in annuity volumes, says Peel Hunt, in addition to being positive about the regulator’s tailwinds that could arise as the regulator reviews the Life insurers’ capital models (Solvency II).
The scope for further closed Life book M&A remains attractive, affirmed analysts, noting that rising interest rates and the increased ability to source illiquid investments should eventually support spreads.
