Heading into the key January 1st, 2024, reinsurance renewals, pricing, terms and conditions (T&Cs), and structures of reinsurance treaties will remain broadly unchanged, says Berenberg.
Analysts met with a mix of reinsurers, brokers and a ratings agency at the annual meeting of the reinsurance industry in Monte Carlo last week.
Representatives from the companies noted the expectation of broadly unchanged hard market conditions heading into next year, as well as anticipating flat to slightly positive risk-adjusted rate increases.
“This would suggest that the margin expansion, better terms of trade and consequently much improved expected returns achieved amid the paradigm shift that the market has experienced in 2023 will persist for longer. This would be a good outcome for the reinsurers in our view,” says Berenberg.
The consensus among the companies spoken to is that uncertainties regarding the frequency of natural catastrophe losses, inflation, and social inflation were all weighing on the reinsurance industry. Consequently, reinsurers are being vocal about the need for further risk-adjusted rate increases, notes Berenberg.
In response, analysts note that brokers are being mindful, on behalf of their clients, of the structural change in terms of trade in 2023. Berenberg highlights the higher reinsurance attachment levels, restriction of coverage and structurally higher pricing, which resulted in a shift of power from the reinsurers to primary insurers.
“Hence, in the absence of any big nat-cat events in the remainder of Q3-Q4, and in the absence of constraints when it comes to supply of capital, we believe that risk-adjusted rate changes will be marginal, ie flat to up low-/mid-single digits, across property nat-cat (they will undoubtedly vary by geography and treaty),” say analysts.
“This would be a good outcome for the industry in our view, as we expect that it will help sustain returns to exceed their cost of capital going forward.”
