Captives that buy large amounts of reinsurance could be facing higher premiums in 2019 if a number of recent industry reports prove accurate.
A report by Keefe, Bruyette & Woods (KBW) analysts suggests that market participants are expecting steadily rising reinsurance pricing over the course of 2019, reflecting declining supply and an expected rise in demand, which could extend into other lines, particularly the retro-dependent Lloyd’s market, KBW said in a Dec. 19 analyst note.
The report suggested that January 1 reinsurance renewals’ rates are expected to come in roughly flat or up modestly year on year (other than retro), according to KBW.
It also noted that retro pricing is definitely “tighter” and KBW believes there’s a very wide retro rate increase range that could average out at around +15-20 percent, but little retro has been bound to date, particularly for loss-impacted accounts, reflecting 2018 losses, analysts noted. Retro capacity has been hit by losses and collateral has been trapped by late events like the California wildfires.
This expectation on the retro market is matched by a report by Moody’s, which also suggested that retrocession pricing is poised to see potentially significant price increases at 1 January 2019 as recent catastrophe events trapped collateral, according to a December 18 Moody's report.
Losses late in the year from hurricane Michael and the California wildfires have “trapped” the collateral of a significant portion of total retrocessional capacity deployed during 2018 and resulted in a late renewal season, Moody’s said.
“In the absence of new capacity, it appears retro pricing is poised to see potentially significant price increases at 1 January. To the extent reinsurers relied on retro capacity to support gross lines, they may be pulling back capacity as retrocessional coverage becomes more expensive,” the agency said in the report.
Reinsurance Rates, Keefe, Bruyette & Woods (KBW), Rates, North America