January renewal rates signal ‘beginning of the end’ of hardening phase, warns Fitch
January renewals pricing, including strongly dampened rates outside the loss-hit lines, could signal "the beginning of the end" of the current hardening phase, analysts at Fitch have said.
January renewals show a split between reinsurers herding into safe segments to tame rate gains while still striving to maintain strict discipline for loss-hit lines to protect rate gains seen to date and ward off inflation, Fitch said in chorus with the developing consensus.
"Abundant reinsurance capital and appetite for growth started to put downward pressure on more attractive lines of business, potentially signalling the beginning of the end of the current hardening market phase," analysts Robert Mazzuoli (pictured) and Brian Schneider wrote.
But reinsurers have clearly defended their "most important objectives" of protecting recent rate gains and in loss -hit lines and warding off the associated inflation risks.
January 2022 renewals in those lines, especially property cat, offer "testament to the ongoing underwriting discipline in the market," Fitch wrote.
But the slowdown in rates is set to spread, Fitch warned.
" Fitch expects price improvements to taper off over the next 12–18 months as the risk appetite in the industry continues to increase and capital remains strong," analysts wrote, with caveat for the impact of large loss.
The mixed picture leaves Fitch with a forecast for a 1% increase in risk-adjusted pricing for 2022 across the whole portfolio, provided nat cat claims remain near normalised levels. That pricing forecast is inflation-adjusted and accounts for treaty quota-share in contrast to the nominal price gains common to the post-1.1 brokerage reports.
That would likely support a return on capital lightly above the high-single digit level noted in 2021 and "broadly matching" the industry's cost of capital, analysts wrote.
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