The seventh time lucky: London & reinsurers can make it in 2023 ‘hard market’

London reinsurers may turn the corner on what is headed to be six years of uninterrupted disappointments as Hurricane Ian pushes an already dislocated property cat market into truly hard market territory.

“We are finally entering a hard market,” analysts at Bank of America Securities said in a note to clients.

“The property catastrophe market was already becoming dislocated before Hurricane Ian hit Florida. These dynamics are only set to intensify as we head into 2023 as capital supply comes under pressure from various factors and demand for reinsurance continues to grow.”

Hopes for 2022 have been dashed and underlying earnings targets will be missed for the sixth straight year, analysts wrote.

After six such years, reinsurers can do little but get serious about pricing. They will now have “significant bargaining power to push for higher prices and further restructuring.”

“We believe a hard property cat market will allow reinsurers to continue to restructure and improve portfolio quality over 2023, given that efforts in the last two years have yet to deliver acceptable results,” analysts wrote.

Inflation can sink earnings near-term after the industry has spent the better part of the post-covid recovery underestimating cost drivers, BofA analysts claimed. That history of underestimations and the lingering inflation unknowns will discourage players from guiding investors to expect any margin improvement, analysts claimed.

In Europe, BofA calls reinsurance and the London market broadly undervalued by share price.

“We prefer quality names in choppy markets,” analysts wrote of top pick calls for Munich Re (27% total return potential), Hiscox (42%) and Beazley (33%).

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