Best’s Market Segment Report: Reinsurance: Will Investor Losses Lead to a Rising Tide for Reinsurance Pricing?

Pricing in the global reinsurance sector remains disappointing following the Jan. 1, 2019, renewals, according to a new AM Best report, as expected rate increases following heavy catastrophe losses in 2017-2018 did not come to fruition.

The Bests Market Segment Report, titled, Reinsurance: Will Investor Losses Lead to a Rising Tide for Pricing?, states that expectations were that reinsurers would react swiftly and adjust their pricing following the heavy catastrophe loss years in an effort to reverse the segments depressed performance. However, renewal rates were mostly flat, with the most significant increases only experienced by loss-affected accounts. Companies tried to maintain discipline, with a few walking away from poorly priced business, while others, particularly the larger players, focused on market share, and as a result remain willing to write inadequately priced risks.

However, investors mindful of the recent poor results have started to demand higher returns and have been more selective in some of the risks and thus capital inflows have slowed aiding in the increase of renewal rates for this segment. Rates in the property catastrophe retrocession segment rose between 10% and 20% at the Jan. 1 renewals, with peaks of 35% on loss-affected accounts.

AM Best believes that investors will continue to invest in third-party capital and that the alignment between third-party and traditional capital will endure, guaranteeing an abundance of capacity for the reinsurance segment.

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Although January renewals did not proffer the price increases that were expected given the nearly $200 billion in losses of the past 18 months, the upcoming renewal seasons will shed more light on the impact of recent typhoon, hurricane and wildfire losses on rates for the remainder of 2019.

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