Although overall reinsurance pricing momentum overall is likely to slow going into 2019, Goldman Sachs expects to see localised rate increases in some areas that have experienced heavy catastrophe losses over 2018.
In Japan, Goldman Sachs predicted that the $8 billion loss from Typhoon Jebi (with a $2 billion reinsurance attachment) will drive prices up, while hurricane losses, including ongoing loss creep from Irma, is expected to produce rate increases of between 10% and 15% in Florida.
Losses from the recent outbreak of wildfires in California, which RMS recently estimated may reach $13 billion, are also likely to lead to an increase in reinsurance prices in the state.
Overall, Goldman Sachs feels that the rate environment continues to be challenging for reinsurers, particularly in the property catastrophe space, with overall pricing momentum likely to slow going into 2019 and RoEs expected to remain in single digits.
In the U.S, property cat reinsurers can anticipate double digit rate increases for most loss-affected accounts, but Goldman Sachs noted that clients are shrinking some protection from the top layers, so overall increases are expected to be 2-3% and non-loss-affected accounts are expected to renew flat.
However, improvements could be seen at the 4/1 renewals for Japan and 6/1 renewals for Florida, amongst other localised increases.
Additionally, Goldman Sachs expects casualty pricing to be modestly better going into 2019, with specialty pricing even stronger as a result of a string of large loss events in the aviation, marine and energy markets over the second half of 2018.
Primary insurers are generally working with a smaller number reinsurers now, while reinsurers are at the same time becoming less relevant due to the advantage of scale in terms of defraying regulatory, technology and acquisition costs, Goldman Sachs suggested.
The firm also claimed that there was an overabundance of alternative capital and insurance-linked securities (ILS) in the market, and suggested that insurers may begin to return to traditional reinsurers given that a significant amount of ILS capital in 2018 has experienced losses or is trapped.
This analysis was based on discussions with individual companies such as Argo Group, Lancashire Group and RenRe, as well as the Bermuda Monetary Authority (BMA) at an event in Bermuda.