Carriers could soon be ceding less risks as the cost of reinsurance and retrocession protection is predicted to increase for most market participants, following Q3 global market losses of an estimated $95 billion.
Far higher pricing increases are predicted for retrocession than the reinsurance segment, although recent industry losses will be felt across the entire value chain to varying degrees, said RBC Capital Markets, commenting on European reinsurers and the Lloyd’s market.
This could drive decisions on capital management and risk retention, causing reinsurers to retain a higher proportion of risks on company balance sheets.
“Hannover Re and SCOR use more retrocession cover than Munich Re and Swiss Re, and therefore could potentially be giving away some of their margin on improved reinsurance business away to their retrocessionaires,” explained RBC.
If retrocession or reinsurance prices increase significantly, it could cause firms to reduce their risks ceded.
At present, RBC doesn’t expect to see any capital raising in the sector, however, “If prices increase above our expectations (in the region of 15% for property catastrophe business) and there is a wider market turn, the potential for capital raising scenarios increases, in our view.”
“The expectation is further for share buyback programmes to be not be renewed at FY17 to enable firms to put their balance sheets to work in a harder market environment,” said RBC.
