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Renewal rate increases imply dramatically better returns: KBW

6th January 2022 - Author: Matt Sheehan

Analysts at KBW have said that rate increases for property and casualty business at the January 1 reinsurance renewals imply “dramatically improved expected returns” for reinsurers.

business-growthAlthough individual cedents’ rate changes varied widely, property catastrophe reinsurance rate increases were measured at around 9% globally and 6.5% in the US, according to KBW.

This marks the biggest set of increases since 2009, with even bigger retrocessional reinsurance rate increases of around 15% stemming from scarce low-layer and aggregate capacity.

According to Gallagher Re reinsurance pricing even increased by over 50% for some loss-hit European catastrophe business at 1/1.

And KBW notes that rising primary casualty insurance rates are similarly flowing through to reinsurers, partly moderated by rising ceding commissions and cedents’ rising net retentions.

“We believe that January 1, 2022, reinsurance renewals again demonstrate reinsurers’ overall rationality, with maintained pricing discipline notwithstanding overall abundant capital for most reinsurance product lines,” analysts stated.

“1/1/22 rate increases clearly trail past post-loss spikes … but represent the fourth or fifth consecutive year of compounding rate increases (depending on the reinsurance line), implying dramatically improved expected returns over that period,” they continued.

Compounding past, present, and future rate increases and conservative initial accident-year 2021 loss picks also imply core combined ratio improvement in 2022, KBW said, which should help to boost the Bermudian re/insurers in particular.

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