Reinsurance is “very healthy”, premium volumes to continue expanding: TD Cowen

The global reinsurance market remains “very healthy” despite a slowdown in rate trajectory at the mid-year renewal season and for those generating returns from reinsurance the opportunity is expected to persist, with premium volumes like to continue to expand, analysts at TD Cowen have said.

The analysts were reporting back on what they heard from industry executives at a recent TD Cowen financial services conference and the reinsurance-related commentary was certainly still bullish.

First, despite declines in property catastrophe reinsurance risk-adjusted pricing at the mid-year, the analysts said the market remains “very healthy”.

Demand continues to be a key driver for reinsurers, meaning that premium volumes written are still rising.

While the rates may have peaked, this is still seen as an opportune time to continue building out property cat books.

That doesn’t just benefit the underwriters, including the insurance-linked securities (ILS) market, it is also beneficial to reinsurance brokers and is expected to keep driving top-line growth, the TD Cowen analysts explained.

While rates are peaking, the analysts noted, “While the overall hard market may be in its latter stages, different products and lines of business are on different cycles with different peaks. For example, U.S. casualty pricing has room to continue improving ahead.”

The main driver of declines in rates-on-line at renewals has been the fact reinsurance capacity has been ample to soak up the additional demand, the analysts report states.

But, on the rate environment, they also note that, “This situation is still tenuous, as the direction of pricing into next year could depend on the level of losses arising from the Atlantic hurricane season.”

Increases in demand, exposure and inflation are likely to keep driving nominal volumes higher, and on the demand side carriers are said to be seeing value in buying more reinsurance, despite the still hard market pricing environment.

At the June and July renewals, there has been cases of excess capacity, for good performing accounts, helping carriers achieve better execution.

That helped the renewals be far more orderly as well, with less stresses than seen a year ago.

Differentiation remains key, with reinsurers still holding discipline on under-performing programs and continuing to limit their exposure to lower layers, the analysts further explained.

Although adding, “That said, while lower layers of reinsurance protection have been harder to fill, they have generally been able to be completed.”

The hurricane season is now the main uncertainty facing the property catastrophe reinsurance sector as, “With a couple of sizable events, this could cause the industry to revert to a situation where more capacity is needed in both the traditional and insurance-linked securities (ILS) reinsurance markets. On the other hand, if the hurricane season is subdued, it could likely create more pricing pressure on reinsurers (as is the historical pattern),” TD Cowen’s analyst team also said.