Analysts at Keefe, Bruyette & Woods (KBW) are anticipating that reinsurance pricing will “trend up modestly” as growth in demand outpaces the ongoing abundance of capacity.
The firm acknowledged that the vast amount of third-party capital in the market will likely result in much smaller post-loss pricing swings than in the past, with most analysts reporting flat to slightly down pricing trends at the recent January renewals.
However, KBW expects the greater prevalence of loss-impacted accounts to translate into higher property reinsurance pricing during Japan’s April 1 renewals and Florida and southeastern U.S renewals at June 1 and July 1.
Broker Willis Re recently suggested that the 1/1 renewals highlighted a reinsurance pricing gap, with UK property catastrophe rates dropping between 2.5% and 7.5% for loss-free accounts and flat to down 2.5% for loss impacted accounts.
This compared with changes ranging from -2.5% to +5% for U.S property catastrophe rates and from +5% to +20% for loss-impacted accounts.
KBW argued that the fact that individual lines’ rates are moving more significantly than the overall market average implies significant opportunities for portfolio optimisation.
Following sizeable losses from Hurricane Michael and the California wildfires in Q4, analysts also anticipate roughly stable core accident-year margins in most lines besides personal auto and workers’ compensation.
KBW expects reinsurers to absorb the majority of the losses from Hurricane Michael, while primary reinsurers should retain most of the wildfire losses.