"Reinsurance pricing outlook “very bleak” – Deutsche Bank"

From Artemis:

Absent further major losses hitting global reinsurance and insurance-linked securities (ILS) markets this year, the expectation now is that rates are likely to lose any ground gained at renewals so far this year and return to a slow softening trend in 2019, according to analysts at Deutsche Bank.

It’s no surprise really, given rate increases have decelerated again at the recent June 1st reinsurance renewal, with only loss affected accounts seeing any meaningful rises.

The gains made in January, as rates rose somewhat, were below the expectations of the traditional market at least, but these gains could be lost within a year if there isn’t a loss event that drains some of the capital from the marketplace.

Deutsche Bank’s equity analysts say that “the reinsurance pricing outlook looks very bleak” as a result, with an expectation that the market may not see any further rate increases to improve on those achieved so far in 2018.

They suggest that reinsurers which have touted the potential to improve their underwriting profitability in 2018 and beyond, on the back of the major losses from 2017, may now find that they and their shareholders are set to be further disappointed, absent any major industry losses.
The big four reinsurers have all expressed a desire to increase profitability over the coming years, not just due to better pricing after the losses but also thanks to greater efficiency.

In fact some of their targets imply improving underwriting returns at a level that some analysts are suggesting would require significant cuts to achieve.

Those efficiency efforts may become more urgent, as premiums earned in 2018 may be about the best they can hope for having mostly bulked up their property portfolios at January renewals this year.

Once those rate increases are earned through, there could be little in the way of increases left as pricing returns to a slow and steady decline.

If re/insurers efficiency efforts, such as headcount reduction and technology initiatives, aren’t seen to improve the bottom line swiftly enough, we could see them accelerated in order to make more immediate impact for their shareholders and to lower their overall cost bases....MORE