S&P forecasts global reinsurance rate rise of 0% to 5%

by Artemis on December 22, 2017

Ratings agency Standard & Poor’s (S&P) has forecast that global reinsurance rates will rise by between 0% and 5% in 2018, with the potential for double-digit price increases in loss-affected lines, but notes that it needs to see more discipline from reinsurers as well.

Increasing reinsurance and ILS ratesS&P says that it expects reinsurance market business conditions will remain weak for 2018, due to continued high levels of competition, particularly as reinsurers will be jostling for position in order to offset their losses suffered this year.

But in much the same vein as the last few years, despite the fact that rating agencies see prospects for reinsurance business in the near-term as less than glowing, they do not anticipate a raft of ratings downgrades for reinsurers and S&P is no different here.

S&P says, “Reinsurers will continue to benefit from robust capital adequacy and strong enterprise risk management capabilities. These strengths should help reinsurers navigate some of the difficult market conditions during the next 12 months and the impact of recent natural catastrophe losses.”

Some amount of price increase appears assured for the global reinsurance market, with the question still how broadly they will be seen and how rates in areas not affected by recent catastrophes will be affected.

S&P explains that there is still a question over whether the recent losses were big enough to generate some stability in reinsurance pricing, “The big question, however, is whether the recent events will be sufficient to at least provide a floor to the global reinsurance-pricing decline of the past few years.”

Before the recent catastrophe losses, S&P had been anticipating that global reinsurance prices would move from flat to down -5% at the January 2018 renewals. Now the rating agency forecasts that rates will be flat to +5% globally, with higher rises in loss impacted areas.

This is perhaps not the major price hike that reinsurance leadership teams had been talking up during the third-quarter results.

With price rises expected to be available, although not all that impressive in terms of size, S&P notes that discipline will be important and it will be watching reinsurers closely as they navigate the new pricing environment.

“How reinsurers will react to the pricing shifts and address underwriting risk management to rebuild their buffers will be key for our opinion on the sector’s creditworthiness in 2018,” the rating agency notes.

Global reinsurance is deemed one of the weakest segments of the re/insurance market for 2018, despite the expectation of prices increasing and the broader decline in pricing being arrested following the losses.

Ratings agencies seem to fear that the prospects of higher pricing, even if only slightly, could influence some reinsurers to underwrite with a little less discipline, and so a close eye is likely to be kept on reinsurer results through 2018.

Also read some of our other coverage on reinsurance pricing trajectory at 1/1 2018 and beyond:

Appropriate, sustainable pricing: What is it & how long will it last?

Reinsurer returns will be barely above cost-of-capital in 2018: Fitch.

Florida Citizens plans for (slightly) harder reinsurance market in 2018.

Reinsurance renewal rates to trail expectations at January 2018.

Alternative capital will maintain influence on pricing: Fitch.

Company loss estimates to increase in 2018, fuel rising prices: Jefferies.

CEA expects 2018 risk transfer pricing will be at lower end of the scale.

Munich Re sees ongoing re/insurance price pressure: CEO.

Some private ILS lines could see rate increases of 30% or more: Twelve Capital.

Rate rises may not relieve underwriting result pressure: Fitch.

Capital could still limit 1/1 reinsurance rate increases: KBW.

Swiss Re hopes for some “substantial” price rises in 2018.

January reinsurance renewals set to be extremely competitive.

Buyers & sellers unlikely to get what they want at renewals: David Flandro.

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