Analysts at Barclays have reported evidence of reinsurance price hardening across geographies and lines of business at the recent July renewals, with rate increases likely to have averaged around 2-3%.
The strongest pricing response is expected in loss-affected areas of the U.S and Asia, as well as in lines that saw relative pullback of capacity.
Additionally, alternative capital was less present in the natural catastrophe space, while several large players like AIG and Lloyd’s reduced their capacity in the specialty and large commercial risks space.
Barclays noted that insurance-linked securities (ILS) pricing offers an early glimpse into the development of pricing and capacity, with bond issuance down 35% year-on-year in the first half of 2019.
Overall retrocession pricing could be up by as much as 25-30%, according to Barclays, and should serve as a support to pricing at the 2020 renewals, unless substantial new capacity floods the market.
Barclays’s also looked at the reinsurance industry’s performance in the second quarter of 2019, observing that the overall claims burden is likely to be below budget for most companies.
Q2 was a relatively quiet quarter in terms of large losses, analysts reported, with no individual event likely to break into the $1 billion+ range despite some moderately severe weather across the Midwest U.S, Central Europe and Australia.
One exception is the loss creep from 2018’s Typhoon Jebi, which increased to $15-16 billion in Q2 2019, up from around $13 billion in Q1.
Barclays believes that loss creep represents the biggest earning risk for the largest reinsurers.
This is particularly true for Swiss Re, Barclays claimed, due to its high share of aggregate loss and its relatively low catastrophe budget, which is additionally skewed towards the second half of the year.