Stable but low property catastrophe reinsurance pricing to persist: KBW

by Artemis on June 24, 2015

In line with recent commentary from fellow re/insurance market analysts’, Keefe, Bruyette & Woods (KBW) has advised that the stabilisation of property & catastrophe reinsurance rates will persist in 2015, despite any losses that occur.

Benign catastrophe losses, heightened competition and ample capacity has seen price declines in the property cat re/insurance sector persist for a prolonged period, but commentary from some reinsurers during mid-year renewals signalled some rate stabilisation, albeit at a structurally lower-level than before.

“We’re seeing and will probably continue to see mostly stable pricing in property catastrophe reinsurance, albeit clearly at much lower-levels than in the immediate aftermath of hurricane Katrina in 2005, or the Japanese earthquake and Thai floods of 2011,” said KBW analyst, Meyer Shields.

Adding; “We think that that stabilisation will probably persist almost regardless of whatever catastrophe losses we actually incur over the course of the year.”

The views of KBW follows trend with those of analysts at Goldman Sachs, which recently noted that pricing in the reinsurance sector could stabilise by the end of 2016 but that this was likely at a structurally lower level, despite future losses.

Shields continued; “Barring some sort of game-changing event we think that also implies that January 1st 2016 renewals will show relatively small decreases year-on-year.”

An increase in multi-year deals, elements of price stabilisation and greater price resistance from catastrophe bonds, notes KBW, perhaps signals that a bottom in the pricing cycle isn’t too far away.

However, the general view of analysts across the industry is that the decline in reinsurance pricing is more of a structural shift, forcing the dynamics of the traditional reinsurance cycle to change, meaning this is more than just a cyclical pricing trend.

Although challenging, a fundamental shift in the reinsurance cycle isn’t necessarily a bad thing. Artemis recently noted that analysts at Credit Suisse view the structurally lower cost of reinsurance capital as an opportunity to property & casualty insurers to innovate products, structures and business models.

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