Reinsurance to stay firm at April, July renewals, but capital to slow trajectory: Moody’s

The reinsurance market is expected to remain firm, in terms of its pricing, at the next sets of major reinsurance renewals, at April 1st and July 1st 2024, despite some capital being expected to flow in, Moody’s Investors Service has said.

However, the trajectory of rates, or the pace of price increases in reinsurance, is expected to slow, as some capital is expected to come in to dampen the ability for rates to move much higher than they are today, Moody’s believes.

“Although reinsurance pricing has been rising since January 2018, the recent January renewals represent a slowdown in the upward pricing momentum observed over the past several years,” the rating agency explained.

Adding that, “The mismatch between supply and demand for property catastrophe reinsurance that led to sharp pricing increases last year has largely abated as both traditional reinsurers and alternative capital providers deploy increased capacity at very attractive risk-adjusted returns.”

At the January renewals, Moody’s notes that there were a number of capital and capacity related factors that helped to slow down the pace of reinsurance rate increases.

First, the availability of retrocessional capacity improved and this helped reinsurers to deploy more of their own capacity, with hedging more widely available to them.

Next, some new capital entered the sector, helping to further moderate pricing.

Alongside this, strong catastrophe bond issuance helped out higher up for protection buyers, while reinsurers also retained more earnings through last year, which bolstered their capacity as well.

All of this contributed to the ability of the reinsurance market to meet cedent demand.

Looking ahead, Moody’s feels the market can remain stable, loss activity and other disruptions allowing. But demand for protection is also expected to remain high, which could help to prevent any widespread softening occurring.

“Given the continued strong demand for coverage from ceding companies, we expect reinsurance pricing to remain firm in April and July, the key renewal dates for Japanese and US reinsurance contracts, respectively,” Moody’s said.

“However, the January 2024 renewals indicate pricing has moved high enough to attract additional reinsurance capital to the market, so we don’t expect reinsurance pricing to move sharply higher from here in the absence of large catastrophe losses that shift the balance of reinsurance supply and demand,” the rating agency concluded.

Also read: Re/insurance market conditions to remain favourable at mid-year 2024: Fitch.