Double-digit reinsurance price increases may extend into 2021: Fitch

The reinsurance market may enjoy further double-digit price increases at the renewals in early 2021, but with capital now flowing into the sector Fitch Ratings warns that this will inevitably halt the rate momentum.

The good news is that reinsurance rates are catching up with the primary market, resulting in a more balanced pricing environment that may prove more sustainable this time around.

Fitch Ratings highlights the numerous factors driving reinsurance rates, saying that “pressure from large property losses, increased liability losses, higher retrocessional pricing and persistently low interest rates” plus the “significant losses expected from the fallout of the coronavirus pandemic” have all combined to drive the most sustained period of firming seen for some years.

“Reinsurance prices hardened for June renewals amid lower retro capacity, with all market sectors generally pricing more conservatively,” Fitch said, noting that while weighted towards catastrophe exposed programs, “reinsurance rates were up 20%-30% for most Florida renewals, with 50%+ increases for some higher risk accounts.”

The potentially limiting factor for reinsurance rate increases is new capital flowing in, with some $5 billion or more of equity raises already seen in the sector, plus billions raised from secondary offering by public re/insurers and privately held firms have raised capital from their investors, private equity players, or issued new debt all to recapitalise.

Fitch is not expecting a raft of new start-ups though, saying that it expects existing players to look to grow more quickly through, “tie-ups with PE companies and side cars” which the rating agency sees as more likely to be used to raise and deploy capital, scaling “existing reinsurers more so than start-ups or new market entrants,” as it sees new players facing more inherent challenges in getting up to speed.

“While favorable pricing trends are poised to continue in 2021, inevitably this large influx of underwriting capacity will halt this rate momentum,” Fitch warns.

Also read: Walking a capital raising tightrope between glory & rate pressure.