Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Opinions differ on insurance and reinsurance rate trajectory in 2013


As we approach the ever important January reinsurance renewal period discussion tends to turn to which way rates are likely to go, up or down. Throughout 2012 the general opinion has been that rate rises would slow and renewals would be flat in 2013 but some market participants remain bullish and are calling for rates to continue to rise as we move through the next year.

Hurricane Sandy and the multi-billion insurance industry loss toll the superstorm has caused is one factor which is causing some to suggest that rates will rise at the 1/1 renewals. However opinions differ depending on who you ask. Typically it seems to be brokers who continue to suggest that rates will drop, not all that surprising considering they are tasked with getting their clients the best possible rates they can. While underwriters have been suggesting that Sandy will keep upwards pressure across the board on rates, with rises expected in loss affected lines and regions.

One reinsurance underwriter who has said they don’t expect the January renewals to result in rate rises is Allianz Re. Their CEO Amer Ahmed is quoted in this Bloomberg article as saying that “Rates will probably be flat to a little down in January”, he continued to say that it will be interesting to see the impact that Sandy has on U.S. catastrophe reinsurance programs that come up for renewal at 1/1.

Meanwhile, Keefe Bruyette & Woods latest analysis on the insurance sector suggests that there will be continued firming of property and casualty rates in 2013, but perhaps not enough to improve underwriting profitability very much, according to Business Insurance. KBW says that a hard market will remain elusive until excess capital disappears from the sector and insurers begin to feel pressure on their financials.

Swiss Re have a similar opinion to KBW on rate trajectory, in their recently published “Global re/insurance review 2012 and outlook 2013/14” report. Swiss Re said that topline growth and pricing power that has been witnessed in non-life insurance in 2012 will continue into 2013. While rate increases in 2012 were nothing to write home about, often being insufficient to compensate for loss of investment earnings, they expect reserve releases will dry up in 2013 supporting a stronger pace of price increases, with casualty lines particularly singled out as likely to rise.

Swiss Re expects developments in reinsurance will follow the primary market closely although the slightly higher than average catastrophe year will reduce profits. This could help to keep upward pressure on rates. Swiss Re says that recent surveys in the U.S. have shown commercial rate increases accelerating, while in Europe underwriters have introduced moderate rate improvements in recent renewals.

The report said that it is not a question of whether broad hardening of rates will occur, rather it is a question of when. Swiss Re believe we are at the ‘mature’ stage of a soft market cycle, and softening has ceased but rates are not yet hardening across the board. It expects a somewhat broader and stronger turn in pricing during 2013, which will set the stage for improved underwriting profitability. Reserve releases is key, the report says, and once reserving proves to be insufficient the scene will be set for a hardening of rates. Capital requirements and initiatives like Solvency II will also force market hardening the report says. Another factor that could trigger hardening is any economic shocks in the capital markets, such as impairment to insurers investments or interest rate rises.

Specifically on the reinsurance renewals at 1/1 Swiss Re said that signals from Monte Carlo and Baden-Baden point to stable to slightly firmer rates and significant hardening will be limited to loss affected lines and segments.

A factor that could also impact the 1/1 reinsurance renewals is the availability of capital market backed reinsurance capacity. At the moment there is at least some new capital available to put to work at the renewals and we hear that there may be further announcements of capital raised before 1/1. Additional capital from convergence players could have a tempering effect on rate trajectory and it will also offer new options to those seeking cover on different terms than the traditional reinsurers provide. It will also be keeping an eye on catastrophe bond rates and pricing to see whether they remain around the lows we’ve seen in recent transactions. Convergence capital played a big role in the renewals at the start of 2012, it will be interesting to see how influential it is this time around.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.