Global ratings agency Standard & Poor’s (S&P) expects average rate increases of between 0% to 5% across the board in the reinsurance industry throughout 2018, maintaining the momentum seen at the January 1st renewals.
S&P notes that following the high level of catastrophe losses in 2017, reinsurance pricing increased, on average, in line with its expectations of 0% to 5%, with the highest rate increases occurring in loss-affected lines.
After what’s expected to be one of the costliest catastrophe loss years on record for the global reinsurance industry, players were hopeful of rate increases at 1/1 after years of declines.
But while rate increases were evident at 1/1, market commentary suggests rate movements were perhaps more moderate that some had hoped for, driven in part by the presence of alternative capital, which appears to have responded well to its first major test.
With this in mind, the potential for further rate increases in 2018 has been a hot industry topic, and S&P believes pricing will continue to develop in line with the January renewals season.
“We believe the rate increases will continue through the remainder of the year, especially considering that Florida and Puerto Rico will be up for renewal in the first half of the year. Those markets will undoubtedly experience double-digit rate increases given the magnitude of the losses they suffered in 2017.
“In addition, rate increases by cedents in their primary lines will help the pro rata reinsurance, as will the rate increases on renewals of portions of multi-year programs (especially in loss-affected lines),” says S&P.
However, the ratings agency warns that traditional capital remains stable and alternative capital remains in place, which, combined with an expectation of large cedents continuing to centralise their reinsurance purchases and consolidate their reinsurance panels, could “hold back further rate increases during the next 12 months.”
“However, the reinsurance sector pricing has found its nadir – at least for now,” says S&P.
