Reinsurers now have upper hand in setting overdue rate hikes
Reinsurers could start to take the upper hand in setting pricing trends after a period of lagging the gains enjoyed by primary carriers and a long run of elevated loss costs, industry leaders told an S&P conference.
“I believe there is a shift this year … we are going to see more reinsurance-led pricing, versus what has been insurance-lead pricing,” the CEO of RenaissanceRe, Kevin O’Donnell, told the seminar. He added that transparency around such a shift in pricing remains low, however, as it remains “early in the cycle.”
A rise in price volatility, including social inflation and general cost inflation to claims, plus the expectations of investors made impatient after years of losses, especially in relation to nat cat, meritthe shift in focus, panelists concurred.
“As a seller of capacity, one would like to think that prices would go up in reflection of increased exposure and other factors,namely inflation,” PartnerRe CEO Jacques Bonneau said.
For AXIS Capital, the to-date run-up in prices has left most lines “adequately priced” but with a visible sense that the insuranceside has outpaced the reinsurance side to date. AXIS sees price increases of more than 40 percent over the past four years as allowing it to “catch up for a number of years of underpricing,” CEO Albert Benchimol told the panel.
But catching up is not staying ahead, especially as loss trends show little sign of abating. “What is important is to continue toprice for what is likely to be elevated loss costs prices for the next several years,” Benchimol said.
“Is it sufficient for the risk taken on in 2022?Probably,” RenaissanceRe’s O’Donnell said of current pricing following recent“good momentum” visible on the market. “But on a rolling basis, probably not.”
Price alone may not solve the bigger issues. Some segments have failed to deliver adequate profits despite double-digit rate gains.
“Price is one element of what we need to be looking at, but it is also structuring,” Bonneau said. He cites years of rate growth in such lines as cyber or property in North America where “prices have been goin up some 5, 10 15 percent a year for the past four to five years” but results “haven’t been terrific.” He spoke of losing ten years of cumulative profits over the course of the most recent five.
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