Analysts at KBW believe reinsurance rates at the upcoming January renewals will increase to lesser degree than had been anticipated, with overall rate movements set to be described by a ‘U-shaped’ curve.
US domestic insurers, for instance, are reporting reinsurance rate changes of flat to up 5%, which is lower than what analysts had expected after the December 2018 wildfires, which were not factored into January 2019 renewals.
KBW attributes the muted rate environment to a combination of larger loss-free insurers pushing back against proposed increases, and a strong appetite from some Lloyd’s reinsurers for US insurers property cat risk.
Looking at European reinsurance, prices are expected to be flat to slightly lower, stemming from a combination of big European reinsurers’ market share goals and the long-running absence of major catastrophe losses.
But either side of reinsurance – in the primary and retrocessional markets – analysts believe rates are set to rise significantly, resulting in the ‘U-shape’ outlined by KBW.
The firm noted that higher retro costs at the 2020 renewals could translate into bigger reinsurance rate increases in the following year, but with the potential for other factors to influence rates over the year it remains too early to say.
The outlook for reinsurance rates also looks more positive at the midyear 2020 renewals, with most management teams projecting more than 40% increases for the Japan-focused April renewals, and 15-20% at the Florida-focused June renewals.
While there has been some disagreement about the ultimate Typhoon Hagibis loss estimate and how it will influence rates, loss creep from 2018’s Typhoo Jebi, combined with costs from Faxai and Hagibis are likely to drive very material reinsurance rate increases in Japan, KBW said.
Similarly, the Florida market’s dependence on strained ILS-funded retro capacity should result in another round of significant increases.
