Early reinsurance renewals point to higher rates

Rates at Jan. 1 reinsurance renewals could be up as much as 10% based on indications from early renewals, according to research released Wednesday by Morgan Stanley and Fitch Ratings Inc.

Based on meetings with nine insurers and reinsurers, the Morgan Stanley said in a research note that “early transactions indicate 20% to 30% rate increases in retro, 10% to 20% in loss-impacted reinsurance contracts, 5% to 10% in loss-free US accounts, and 0% to 5% in Europe.”

Further, increases could also find their way into the primary insurance market, Morgan Stanley said.

“The increase also extends to primary insurance, up 10% to 30% in loss-impacted businesses, and casualty lines up single-digit,” Morgan Stanley said.

Alternative capital may play a role in the market as well, having shared substantially in the industry’s recent catastrophe losses, Morgan Stanley said, adding that capital providers seem anxious to get back to business.

“We estimate alternative markets could share $10 billion to $20 billion of the estimated $80 billion to $100 billion (third-quarter) industry cat losses,” Morgan Stanley said. “Our conversations with alternative capital managers indicate the third-party capital providers are willing to reload. We have also seen new capital looking at potential opportunities post events.”

Meanwhile, Fitch Ratings said rate increases would vary across different lines of business in its Fitch 2018 Outlook: U.S. Property/Casualty Insurance report on Wednesday.

“The second-half 2017 catastrophe losses are likely to promote a shift in pricing trends across numerous segments, but to varying degrees. Commercial property segments will bear the sharpest near-term premium rate and underwriting changes, followed by personal property business in loss-affected areas.”

These gains could be short-lived, however. “Pricing improvements throughout the market may ultimately be short-lived as competitive dynamics are relatively unchanged,” Fitch said.

The property/casualty sector outlook remains negative, according to Fitch, as “market fundamentals point to several challenges hindering a return to significant underwriting profits and an adequate market return on capital.” Fitch’s rating outlook for the sector remains stable.