In 2023, the reinsurance sector has outperformed expectations, with JP Morgan analysts’ bullish stance since mid-2022 being substantiated by robust pricing trends and this year’s renewal outcomes.
In particular, the European reinsurers have showcased positive pricing improvements year-to-date, even when accounting for higher loss cost assumptions.
The results of the Guy Carpenter World Property Catastrophe Index reveal a significant 28% year-on-year increase in prices during the January renewals, marking the largest surge since 2006.
Importantly, this pricing momentum has not wavered and has, in fact, accelerated during the mid-year renewals, with the Guy Carpenter US Property Catastrophe Index reporting a 35% increase, the highest in 17 years.
Analysts at JP Morgan assert that the strong pricing trends can be attributed to shifts in terms, conditions, and structures of reinsurance programs, indicating a movement away from secondary type risks.
This is in stark contrast to the results of US primary insurers, who have struggled with poor 1H23 results due to the impact of convective storms.
As the current hurricane season unfolds, industry experts are considering the potential implications for reinsurance pricing in 2024. While a light hurricane season could bolster reinsurers’ return on equity (ROE) by approximately 1.5 percentage points, a below-average Atlantic hurricane season could spark debates around pricing adjustments.
Although it might be premature to mobilise additional capital, a slight softening in pricing could be expected. However, it’s anticipated that structures will remain unchanged, with retentions likely to remain at high levels or even increase in line with inflation, particularly given the losses incurred by primary insurers.
Should the hurricane season proceed as usual, analysts anticipate relatively stable or modestly increasing pricing. Reinsurers are expected to continue avoiding the lowest layers in reinsurance programs.
In the event of an above-average hurricane season, industry observers predict that reinsurers will seek to raise prices once more. The memory of Hurricane Ian’s impact in 2022, which prompted significant changes to programs and substantial price increases for property catastrophe-related risks, remains fresh in the minds of reinsurers.
Therefore, even in a market where US property catastrophe prices reached record levels in the 2023 mid-year renewals, the potential for a notably active hurricane season could sustain the upward trajectory of property catastrophe risk pricing in 2023 and beyond.
