Reinsurance pricing is set to decline at 1 January 2019 renewals in light of manageable catastrophe losses over the third quarter of 2018, as well as ongoing overcapitalisation and the robust appetite of alternative capital markets, according to analysts at J.P. Morgan.
Commercial re/insurers and personal lines are likely to have exposure to a number of catastrophe events over 3Q 2018, including Hurricane Florence, the California wildfires, and Typhoons Jebi, Trami, and Mangkhut, which J.P. Morgan estimates could total $10-$20 billion in insured losses.
Such a loss is manageable when compared with last year’s insured hurricane losses of about $75 billion, and has been reflected in 3Q 2018 insurance price increases, which slowed by a couple of tenths of a point.
While this amount appears insignificant, J.P. Morgan believes it means P&C insurance price increases are unlikely to accelerate further even as companies seek to keep rises in line with loss inflation.
The firm expects commercial P&C insurers to continue to earn about an 11% return on equity for the next few years, which it considers to be fairly attractive relative to the average price/book valuation of 1.3x.
On average, P&C insurance prices increased +1.5% during 2Q18, +1.7% in 1Q18, and +0.3% in 4Q17, J.P. Morgan said, which compares with decreases of -1.3% in 3Q17 and -2.8% in 2Q17.
Overall, 3Q 2018 book value for P&C re/insurers is expected to increase by around 2%, reflecting profitable quarters and modest investment gains, while average reported combined ratios are expected to improve from 138% to 89%.
Additionally, J.P. Morgan said that underlying ratios could improve slightly from 87% to 85%, while average net written premium growth could increase by up to 11% over Q3.