Reinsurance News

Reinsurance on cusp of true hard market: JMP

16th September 2022 - Author: Matt Sheehan

Analysts at JMP Securities have reported that the property reinsurance market maybe be “on the cusp” of a truly hard pricing environment, ahead of the January 1 renewals.

HardeningFollowing its discussion at the Rendez-Vous de Septembre event in Monte Carlo this year, JMP concluded that the reinsurance sector is clearly in its strongest position in many years, particularly regarding property exposures.

Inflation and the potential for capacity shortfalls led the discussions at RVS 2023, with the topic of pricing not at the top of the list, leading analysts to believe the upcoming January 1 renewal will be one of the more difficult buyers have faced in recent memory.

That said, it still expects renewals to get done, albeit likely at the eleventh hour and at the expense of pricing, terms, and conditions that insurers may find difficult to swallow.

Of course, this assumes 2022’s hurricane season remains benign, as a landfalling major hurricane could throw all that calculus out the window.

Stratumn, by SIA Partners

JMP also believes that the potential supply/demand mismatch could result in true hard market conditions in certain property lines, as inflation is pushing demand higher, while recent results have led several reinsurers to reduce supply.

While some reinsurers have reduced exposure or exited the segment completely, others have indicated a potential appetite to increase exposure, but only with significant changes to pricing, as well as terms and conditions.

JMP’s discussions with underwriters and brokers showed broad consensus around something in the 10-15% range in terms of additional capacity needing to be purchased (or retained) by primaries simply to account for inflation, with adjustments to pricing adding to that amount.

All in, analysts see something in the neighbourhood of $15-$20 billion of additional capacity needing to be found to bring supply and demand back into equilibrium.

And this increased demand at a time when reinsurers have been constraining supply can only result in prices going up further, JMP reports.

According to JMP, the casualty market appears much more orderly than property, but inflation and prior years’ reserves remain a concern.

Here, ceding commissions on casualty reinsurance have likely peaked, and may retreat somewhat, as reinsurers contemplate a slowing in the pace of underlying primary rate increases, inflation, and the re-opening of the U.S. court system post-pandemic.

Also worth noting, following its discussions JMP reports that a number of reinsurers that have reduced exposure to property reinsurance have also voiced a desire to grow in specialty insurance.

Given the mismatch in size between the two markets on a capacity basis, JMP was somewhat concerned that it wouldn’t take much of a redirection of capacity from property to specialty to adversely impact market conditions.

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