2018 could bring the much-awaited upswing for the reinsurance sector, with prices potentially increasing further into the year improving the pricing outlook after a 1/1 renewal season in which rate increases were broader than expected, according to J.P. Morgan.
Analysts are optimistic that pricing appears to have stopped falling in essentially all business lines across property and even some areas of casualty, which they believe “relative to the outcome in a “no-loss” year is a significant improvement.”
In February, after reinsurers released details of their 1/1 renewals, the full impact of 2017 losses on pricing will become visible and J.P. Morgan believes it’s possible that following this rates will grow further as the year progresses, particularly “if increasing numbers of market participates see adverse loss development relative to the 2017 events.”
Although insurance broker reports from just after 1/1 showed less of a bottoming out of the soft market pricing cycle than re/insurers had hoped for, J.P. Morgan remains optimistic, pointing to the fact that pricing did move upwards and the Guy Carpenter Global Property Catastrophe Rate-On-Line index rose by 6.1%.
“Given that 2017 will be a year in which ROEs across the sector are well below through-the-cycle targets, we believe the sector will seek to over earn in the short term in order to recoup some of this lost ground.
“While it appears less clear so far that HIM will prove to be an NPV-positive event for the sector as other very large loss years have subsequently proved to be, in our view there is still upside risk to these targets for FY18 & FY19E (assuming losses return to normal levels),” J.P. Morgan said.
Analysts forecast overall pricing increases for the sector of around 2%, within a 1-3% range, and this could produce similar growth to combined ratios towards the end of the year, pointing toward an increase in underlying profitability in 2018 and 2019.