Reinsurance rates set to rise 50% in Japan, 20% in Florida: Analysts

Reinsurance renewals are expected to see significant increases in pricing in both April and June, but the biggest increases are expected to be in Japan, while Florida is likely to rise more than in recent years, but still at a slower pace.

As we explained before, the Japanese reinsurance renewals in April are likely to see some of the most significant rate and pricing increases experienced by reinsurers and ILS funds in many years.

Analysts at KBW said that this expectation persists, with rate increases approaching 50% anticipated by many in the reinsurance market at the April 1st Japan renewals.

While roughly 20% increases are expected to be seen at the Florida focused reinsurance renewals at June 1st.

The delta between these two figures reflects the recent and severe loss experience in Japan, with both prior and current year typhoon loss impacts to be factored in.

Also a factor is the Japanese markets perceived focus on longer term relationships, which could result in a greater chance of payback for reinsurance capital providers than they are likely to see in Florida, it seems.

At the same time, the so-called “U shaped” market environment is persisting, the analysts said, with primary insurane rates and retrocession rates still rising faster than reinsurance.

However, to compensate for this, some reinsurance markets are raising already high quota share ceding commissions, as one way to ensure they benefit from the rising primary insurance rate environment.

Significant corrections in pricing are expected throughout 2020 by reinsurance executives, making this year perhaps the most promising in some time for those targeting returns from the reinsurance marketplace.

However, European lines continue to be deemed disappointing, the KBW analysts said.

At a recent conference that the analysts attended, they report that Marc Grandisson, CEO of Arch Capital, said that “double digit” increases are expected in Japan and better than 2019, adding that they will exceed the higher expected loss levels coming from recalibrated Japanese catastrophe models.

Steve Arora, CEO of Axis Re, also spoke at the event, saying that Japanese clients recognise the need to recalibrate their net risk appetites, while also maintaining their long-term strategic reinsurance relationships.

Arora said that the Japanese reinsurance renewals are expected to be orderly, but added that the Florida reinsurance renewals in June may be less so, as reinsurers have lost patience with some loss-hit carriers.

RenaissanceRe’s CFO Bob Qutub also spoke, saying that despite his firms overall profitability in Florida, the company still sees the need for significant mid-year rate increases to sustain adequate expected returns on this catastrophe exposed business.

All of which bodes well for the upcoming renewal seasons, as negotiations continue and we move close to the key April and June dates.