Analysts from BofA Securities, Inc. are forecasting a promising year for the reinsurance industry in 2023, as shares continue to outperform the broader sector and market.
European reinsurers, in particular, saw a remarkable upswing with a year-to-date growth of 21%, significantly outstripping the sector’s 9% and the market’s 8% gains.
This robust performance can be attributed to a strong operational backdrop and the emergence of a long-anticipated hard market, which analysts believe is here to stay, the analysts noted.
The increased prices and attachment points secured during the 2023 renewals have started to yield positive results for global reinsurers.
Analysts have observed greater earnings volatility in primary insurance results, indicative of the positive impact on the reinsurance industry.
The limited capital inflows have led analysts to remain optimistic about the medium-term outlook, with a belief that reinsurers are likely to prioritise further restructuring over expansion in 2024 to maintain their profit margins.
Specialist commercial insurers have also enjoyed an attractive operational outlook due to the sustained hard market. Commercial insurance rates, especially for liability and cyber coverage, have steadily increased in recent years.
The pricing outlook remains promising, especially as property rates are beginning to accelerate. Additionally, London Market insurers are allocating capital to reinsurance opportunities, further bolstering the sector.
Looking ahead to the January 2024 renewals, the focus will be on Europe. Reinsurers are expected to benefit from the higher retention limits and improved terms and conditions secured in 2023, as primary insurers absorb a larger share of natural catastrophe losses.
The key question for the industry will be whether the restructuring efforts undertaken in 2023 were sufficient to reduce their share of losses or if additional restructuring is on the horizon. Analysts at BofA Securities anticipate the latter scenario to be more likely as 2024 approaches, the analysts concluded.
