January reinsurance renewals confirm 2020 market firming

Moody's Investor Service has concluded that the January reinsurance renewals have confirmed its expectation that prices will firm in 2020. However, it is not all bad news. Moody's made it clear that the rises are particularly focused on loss-affected lines, suggesting the firming may not be as across the board as it at first appears. And it is also focused on certain territories and regions more than others, with Japanese and US reinsurance contracts being hit harder than European. Moody's said the price firming is being driven by an industry-wide reassessment of risk and return, rising claims and losses on certain casualty lines, as well as low interest rates and rising retrocession prices. In general, the market has seen loss-affected property catastrophe reinsurance increase while loss-free catastrophe prices were flat globally, notably declining in Asia and to some extent in Europe. But there were higher prices for loss-free US and Caribbean accounts, which Moody's suggested means further increases are likely when the bulk of US reinsurance contracts renew in July. “The price of property catastrophe reinsurance cover has been rising since January 2018, reversing a decline that began in 2012. However, the increase has not been broad-based, with loss-affected lines benefiting significantly more than loss-free business. The January 2020 renewals were consistent with both of these trends,” said Moody's. The ratings agency stressed that the January reinsurance renewals tend to have a European focus, and Europe has not suffered significant catastrophe losses in recent years relative to the US and Japan. As a result, the risk-adjusted cost of capital is lower in Europe, allowing reinsurers to forego price increases that are more urgently required elsewhere, said Moody's. It said it expects more broad-based price increases in April and July, the main renewal dates for Japanese and US reinsurance contracts respectively. On the casualty reinsurance side, the bad news is that prices have been rising, by between 5% and 10% for European loss-hit lines, and by between 0% and 7.5% for loss-free contracts. In the US, casualty prices also trended higher, rising by up to 30% for certain loss-affected liability lines, according to Moody's. “In Europe, the price increases reflected reinsurers’ more conservative assessment of casualty business, especially in markets where claims are rising, and continued pressure on investment returns from low interest rates. In the US, casualty price increases were primarily driven by lines of business where there has been adverse reserve development, and where loss expectations are rising. Liability lines have been affected by higher jury awards for plaintiffs,” said Moody's. All of this will inevitably be reflected to a lesser or greater degree in the international primary markets. Insurers have been hit by catastrophe losses and increasing losses on the casualty side. It seems unlikely that there will be much change to the general firming trend in 2020 seen across most markets and regions.

January reinsurance renewals confirm 2020 market firming

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