KBW analysts predict constrained capacity (particularly for aggregate retrocessional protection) and rising demand to drive solid, margin-expanding rate increases for most reinsurance lines.
Property catastrophe reinsurance is singled out as a line set for particularly notable increases.
During a virtual Bermuda tour, KBW say executives made repeated reference to diminished ILS capacity, with several investors having essentially exited the asset class after five years of generally-disappointing results.
Catastrophe losses, trapped capital, and fund redemptions collectively pushed ILS-backed reinsurance capacity down to an estimated $70-75 billion.
The consequent capacity shortfall, KBW believes, is likely to ripple through other reinsurance (and ultimately insurance) lines as reinsurers recalibrate their expected net exposure.
Sustained elevated demand for casualty insurance lines is also expected, mostly reflecting very strong ongoing direct written premium growth stemming from the combination of exposure unit growth and still-strong rate increases.
Interestingly, there was virtually no statistical relationship between initial accident-year loss ratios and direct written premium retention ratios; somewhat surprising given how insurers generally cede more casualty premiums during soft and/or less-profitable years and vice versa
Therefore, KBW expects aggregate reinsurance demand as a percentage of direct or gross written premiums to stay broadly flat despite likely-improving accident-year loss ratios.
“We’re optimistic about premium volumes and expected underwriting profitability for both specialty insurance lines and for reinsurance,” KBW concluded.
