Analysts at Morgan Stanley expect European reinsurers to achieve low single digit rate improvements in the Japan-focused, April renewals, alongside further tightening in terms and conditions (T&C).
After consecutive heavy loss years and the impacts of the pandemic in 2020, reinsurers were hopeful of meaningful rate rises at the January 1st, 2021 renewals.
While improvements did come to fruition, overall, the January renewals were described as disappointing and, market sentiment suggests that further improvements are needed at the April and mid-year renewal seasons.
However, those hoping for significant gains at April 1st might well be disappointing again as analysts forecast positive rate changes in the low single digits.
While business up for renewal at April 1st involves to a certain extent global accounts, most contracts renewing are for Japanese business. According to Morgan Stanley, full year 2020 was a benign period for losses in the region when compared with 2018 and 2019.
“We therefore expect modest pricing improvements in the 2021 April renewal,” say analysts.
The European reinsurers in Morgan Stanley’s coverage universe reported low to mid single digit improvements in the 2020 April renewal, with an average increase of 6.5%. In 2020, for the industry overall, Japanese accounts saw pricing increases of between 30-50% in loss-affected policies and 10-35% in loss free wind and flood business specifically.
In light of these trends, Morgan Stanley analysts note that if European reinsurers are to meet the mid single digit pricing improvements reflected in its 2021 forecasts, price improvements in the high single digits will need to be achieved at the June and July renewals combined.
As well as improved pricing, the January 2021 renewals also saw the tightening of T&Cs, driven mostly by the pandemic and the ongoing issue around the validity of business interruption claims following government enforced lockdowns.
According to analysts, this trend is expected to continue at the upcoming renewals and is likely to supplement the picture.