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14 September 2022 Insurance

The Monte Carlo consensus in stock market eyes: rates must rise

The Monte Carlo reinsurance Rendez-Vous showed a broad consensus that rates must rise with nearly all palpable factors pushing the industry towards higher rates at the 1.1 2023 renewals, a key equity market brokerage said in the wake of the conference.

“The key takeaway from our trip to the Monte Carlo Rendez-Vous is that there is broad acceptance that rates have to increase,” insurance sector analysts Kathryn Fear and Tryfonas Spyrou of the Berenberg investment house said in a note to clients early Wednesday.

While rate gains can do little but keep pace with inflation, supply and demand side factors have all lined up in favor of stronger pricing, they say.

“The impact of rising interest rates, and social and cost inflation, as well as a prolonged period of above-average natural-catastrophe losses, continues to drive the market to demand higher returns on capital.”

After inflation and its overlay to loss trends, supply-side concerns drew top note from Berenberg. “Capacity constraints are a key concern within the market, with brokers keen to secure business sooner rather than later,” analysts wrote.

Speaking to equity investors, Berenberg sounds of comparatively bullish on the sector. “Considering the underlying pricing trends, we continue to remain positive on the outlook for the sector, given the substantial increase in underlying earnings power from four consecutive years of rate increases,” analysts wrote.

Preference goes to reinsurers with capacity built either on balance sheet stamina, chiefly Munich Re, or newcomers bringing a lack of baggage to the table, such as Conduit Re. Berenberg is impressed with Conduit Re's taste for nat cat and its investment argument that is remains nimble enough to position well.

Elsewhere int he Berenberg notes, Hannover Re sounded optimistic to Berenberg ears, likening 2022 Rendez-Vous to that last seen in 2008. Berenberg believes Hannover "will remain disciplined" in its growth, but warns that reduced retrocession cover can lead to earnings volatility.

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