Analysts at JMP Securities are forecasting “unexciting” rate increases at the January re/insurance renewals, with more notable improvements likely to be seen later in the year during the April and June/July renewals.
While the property and casualty (P&C) market does appear to be improving in all areas, it is doing so to varying degrees, according to JMP Securities.
The firm sees primary insurance and retrocession as benefiting from the largest improvements, with reinsurance doing less well.
Based on discussions with senior management teams, there also seems to be widespread agreement that January 1 is shaping up to be a very late renewal, as reinsurers struggle to get their retro in place and insurers are forced to rethink budget and structures.
JMP Securities believes this is a trend that will persist throughout the year, and possibly become even more pronounced.
The muted forecast for the January renewals is largely a reflection of the mix of accounts set to renew – mostly large European, large US national and US regionals – the majority of which maintain large retentions and have not collected on their reinsurance programs in many years.
Broadly speaking, analysts view European cat as looking flat to down, while the large US placements are looking more flat to up, suggesting that the property cat reinsurance market could be flat overall at January.
Aside from cat, some of the more stressed casualty lines and some specialty lines are now seeing pricing move higher, which should help to drive overall price increases in the mid to upper single digits at 1/1.
But as the year progresses, the rate movement picture is set to improve, with the Japan wind renewals at April expected to see large increases due to adverse development on Typhoon Jebi and fresh losses from Typhoons Faxai and Hagibis.
Following its conversations, JMP Securities anticipates rate increases in excess of the ~20% seen this year, with some management teams estimating increases in the 30-35% range, or higher.
As focus shifts to midyear Florida renewals, we pricing is also expected to rise significantly, as ongoing adverse development from Hurricanes Irma and Michael drive reinsurer losses higher.
Analysts also believe the differentiation will be a key theme as reinsurers allocate the most capacity at the best price to those insurers that have demonstrated an understanding of the exposures in their book.
