Analysts see similar potential for reinsurance rate increases in 2019 but are split on the severity of catastrophe losses, according to research notes released Wednesday.

Jan. 1 reinsurance renewals are forecast to be “roughly flat or up modestly year over year” excluding the retrocession market but could be blunted if the sector sees substantial additional capital, according to a research note from Keefe, Bruyette & Woods Inc.

The Jan. 1 renewals, largely comprising U.S and European accounts, will reflect “few or manageable 2018 catastrophe losses,” the New York-based investment banking firm said in its note.

Recent meetings with reinsurance management this week showed wide expectations for strength in the market, KBW said.

“We remain moderately optimistic about 2019 reinsurance pricing — and hence some Bermudian (insurers and reinsurers) — following our Monday and Tuesday meetings with numerous underwriters and brokers. Virtually everyone we met expects steadily rising reinsurance pricing over the course of 2019,” KBW said.

The retrocession market, however, is seen as being tighter, with the potential for low double-digit increases.

“We believe there’s a very wide retro rate increase range that could average out at around 15% to 20%,” the analysts said.

Renewal cycles for Japan, typically April 1, and Florida and the Southeastern U.S. at midyear hold further promise, KBW said.

“Most executives were cautiously optimistic about the prospects for significant later renewal dates. Both Japanese renewals and Florida/Southeastern U.S. renewals should include a higher percentage of loss-impacted accounts, reflecting typhoon Jebi, hurricanes Florence and Michael, and numerous other smaller events,” KBW said.

Additional capital, however, could alter those equations, with KBW noting that despite some shifts in capital allocation, the insurance-linked securities business will likely persevere.

“The biggest risk to progressively stronger reinsurance rate increases is the potential for increased capacity, including ILS fund inflows,” KBW said, noting that “Stephen Catlin is reportedly progressing toward raising about $3 billion to establish a new reinsurer” and that “Hamilton is looking for ILS investors.”

The ILS sector is also likely to provide continuing sources of capital.

“After our December 2017 Bermuda visit, we concluded that ‘Alternative Capital’ has ‘Proof of Concept’ and we think that still holds; despite some ILS fund redemptions, much less replenishment of lost or trapped capital, and some ILS management market share shifts, we believe that sophisticated alternative capital providers remain committed to the reinsurance asset class,” KBW said.

Morgan Stanley sees the market a little differently, however.

“Our meetings with eight reinsurers indicate flat Jan. 1 renewals but 10%-plus pricing for midyear,” the New York-based bank said in a note.

The Morgan Stanley note cast catastrophe losses as more severe, calling 2018 “another active year with approximately $80 billion industry losses,” after a record 2017 with roughly $140 billion industry losses.

Morgan Stanley more closely concurred with KBW on the retrocession market, though.

“Two consecutive years of elevated losses have taken a toll on reinsurance capital, including alternative markets,” the bank said. “The most acute impact is evident in the retro markets,” where capacity could be off some 10% to 20%, a figure similar to KBW’s price increase range.

The two also differed slightly on alternative capital, with Morgan Stanley acknowledging its staying power with a less bullish tone.

“We think alternative capital is here to stay, but its rapid growth could take a pause as investors are reassessing the risk reward given recent developments.”