Inevitable reinsurance price momentum will accelerate at 1/1: Jefferies

It is “inevitable” that reinsurance renewal rates and pricing will rise and even accelerate their momentum at the important January 1 2023 renewal season, according to analysts at Jefferies.

The equity analyst team of the investment bank highlight both the significant catastrophe losses from hurricane Ian and the underlying margin weakness seen as insurance and reinsurance companies as the drivers of expected price momentum at 1/1.

On hurricane Ian, the analysts point to the early estimate of losses from Swiss Re and also the comments on the industry loss from Florida Citizens’ CEO, as two data points that might suggest the ultimate industry loss falls below many expectations.

In fact, Jefferies analyst team say that, because of these two data points, “we tentatively estimate the industry loss to be c.$45bn.”

Even at this lower level of losses from hurricane Ian, remember this is low-down in a range of estimates that still stretches to over $70 billion, Jefferies still believe the ramifications for 2023’s reinsurance renewals will be significant.

“Catastrophes aside, underlying margins appear weak, making future price rises even more likely at the upcoming renewals,” the analysts explained.

“Apart from a few larger typhoons in the Pacific, the most material industry-wide changes relate to negative development of losses from earlier this year, including the summer’s French hailstorms and Australian floods,” the analysts continued.

But then highlight Swiss Re’s pre-announcement of hurricane Ian losses, which implied an underlying margin weakness, Jefferies analysts said.

“Looking across the sector, peers such as Munich Re could also potentially be in a similar position. We see this as disappointing, especially as the industry is already more than five years into this current hard market,” Jefferies analyst team explained.

Concluding that, “Given the high level of catastrophe losses and underlying margin weakness, it appears inevitable that reinsurance prices will not only rise at the upcoming January renewals, but even accelerate their momentum year-on-year.”

Finally, the analysts point out that even before hurricane Ian, almost everyone was forecasting a harder reinsurance market at the January 2023 renewals, which they say supports their thesis that rate rises will be higher than seen a year earlier.

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