Slowing reinsurance price decline a “glimmer of hope”: Morgan Stanley

by Artemis on July 14, 2015

The pricing reported from mid-year reinsurance renewals at June and July 1st, showing that rate declines appear to be slowing or even stabilising in some areas, is a positive “glimmer of hope” for property catastrophe reinsurers, according to Morgan Stanley.

This amid signs that property and casualty insurance pricing continues to decelerate, according to investment bank analysts from Morgan Stanley. This is adding pressure on primary players now, in a similar way to the reinsurance market pressures seen over recent years.

U.S. primary insurance pricing trend turns flat

U.S. P&C primary insurance pricing trend turns flat

As a result, M&A is seen as a route to growth and expense management, as became very evident this week with the announcement of the ACE Group and Chubb $28.3 billion mega-deal. Consolidation has spread from reinsurance into P&C insurance, the analysts note, now that the excess capital and limited opportunities for growth have impacted the primary sector too.

Morgan Stanley’s analysts highlight this “glimmer of hope” for reinsurance firms, as the recent Florida renewals showed price declines slowing to 5% to 7% down, compared to around 15% down in renewals over the last couple of years.

“Industry participants see diminishing returns and increasing demand (from FHCF and Citizens “de-pop”) supporting the bottoming process in both traditional reinsurance and alternative capital markets,” the analysts explain.

U.S. property catastrophe rate-on-line (RoL) index

U.S. property catastrophe rate-on-line (RoL) index

The slowdown in reinsurance price declines is seen as a positive for the reinsurance sector by Morgan Stanley, however pressure remains as evidenced by continued declines at July 1 renewal, albeit again at slower pace.

Morgan Stanley’s analysts warn that reserve releases, while expected to continues, will likely shrink over the coming year. This will reduce profitability further at both insurers and reinsurers, as releases from prior year reserving have been boosting reinsurer returns on equity in recent years.

With insured disaster losses remaining below average so far in 2015 there appears little reason to expect a complete leveling out of reinsurance pricing, so further declines are likely at January 1. However the “glimmer of hope” of a slowing pace of decline will be seen as positive by reinsurers and their shareholders alike.

Further reinsurance renewal coverage:

Florida property catastrophe reinsurance rates down 8.5%: JLT Re.

U.S. wind reinsurance prices moderate most at July renewal: Guy Carpenter.

Alternative reinsurance capital hits $66bn, outpaces traditional: Aon Benfield.

Reinsurance rates stabilising at renewal, ILS discipline contributes: Willis Re.

June renewals show reinsurance price decline moderating: Guy Carpenter.

Reinsurance price pressure to persist, ROE’s to struggle: A.M. Best.

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