{"id":959,"date":"2024-10-03T08:00:23","date_gmt":"2024-10-03T08:00:23","guid":{"rendered":"http:\/\/justiceapp.me\/?p=959"},"modified":"2024-10-04T21:02:26","modified_gmt":"2024-10-04T21:02:26","slug":"only-small-scale-reinsurance-renewal-softening-seen-for-january-2025-j-p-morgan-analysts","status":"publish","type":"post","link":"http:\/\/justiceapp.me\/index.php\/2024\/10\/03\/only-small-scale-reinsurance-renewal-softening-seen-for-january-2025-j-p-morgan-analysts\/","title":{"rendered":"Only \u201csmall scale\u201d reinsurance renewal softening seen for January 2025: J.P. Morgan analysts"},"content":{"rendered":"

This content is copyright to www.artemis.bm<\/a> and should not appear anywhere else, or an infringement has occurred.<\/p>\n

While the expectation continues to be that prices will soften off their highs somewhat at the January 2025 reinsurance renewals, analysts at J.P. Morgan say they expect this will only be at “small scale”.
\n<\/span>
\n\"january-2025-reinsurance-renewals\"The reinsurance market turn seen in 2023, when prices reset higher, while attachments and terms were reset at more sustainable levels for the reinsurers, is said likely to “go down in history along with other true hard markets such as 1992\/93 and 2005\/6,” according to the equity analyst team at investment bank J.P. Morgan.<\/p>\n

This reinsurance reset has been much-discussed and has resulted in reinsurers generating much stronger returns.<\/p>\n

After which, the analysts say, “We expect that 2025 will see a stabilisation of the reinsurance market.”<\/p>\n

Leading the J.P. Morgan team to comment on the coming end of year renewals, “Our view on reinsurance pricing at the January 2025 renewals is that we are likely to see some mild softening in the market off the peaks seen in 2024. We expect these reductions to be small scale, in the mid-single digit range for property cat lines but this would be the first market reduction seen since 2017.”<\/p>\n

They continue to say that, “While margins are still likely to be far higher than they were pre-2023, market cycles naturally soften at points after periods of excess profitability, with the reinsurance market still relatively fragmented.”<\/p>\n

Explaining what happened during the last reinsurance market softening cycle from 2013 through 2017, the analysts note that this began with just a 0.5% decline in the Guy Carpenter Global Property Rate on Line Index<\/a>.<\/p>\n

That softening accelerated the following year, but of course this was during a period of US hurricane landfall drought and also of excess capital build-up in the industry, while demand was not rising particularly rapidly to soak up capital inflows.<\/p>\n

“The soft cycle then accelerated from 2014 onwards as catastrophe losses remained below normal levels with underwriting margins on a normal basis showing severe deterioration in the period 2014-17,” J.P. Morgan’s analyst team noted.<\/p>\n

That period of lighter catastrophe losses running up to 2017 helped reinsurer results hold up somewhat, despite the eroded pricing power. It remains to be seen if the same could be said at cat loss levels seen over recent years.<\/p>\n

Now, in 2024, the market has seen “a once in a generation change in reinsurance structures” the analysts note, highlighting sometimes material increases in retentions for primary insurers.<\/p>\n

These changes yielded results, driving returns-on-equity (ROE) much higher for traditional reinsurance firms, while at the same time the insurance-linked securities (ILS) and catastrophe bond market had experienced record or near-record levels of return in 2023.<\/p>\n

The J.P. Morgan analysts believe that the reinsurers are now happy with the status-quo, but they do not expect an enormous amount to be given back it seems, even after what might turn out to be two more profitable years (depending on how the rest of 2024 pans out).<\/p>\n

“We expect to see some pressure into 2025 on prices but not on terms and conditions or structures,” the analysts explain.<\/p>\n

After conversations at industry events such as the Monte Carlo Rendez-Vous, the J.P. Morgan analysts noted that while there were some calls from brokers for a more accomodating renewal from the reinsurers, they did not hear especially strong messages from brokers about the need to reduce price or loosen terms.<\/p>\n

As a result of this, the analysts state, “We came away with the conclusion that US property catastrophe pricing will come under more pressure than European business given relatively benign loss experience for the reinsurers in this market since 2022. Europe, however, saw more mixed loss experience with severe weather seen in parts of Europe in 2023\/24.<\/p>\n

“We assume that property catastrophe reinsurance prices in 2025 will reduce mid single digits at the January renewals, with US rates outweighing any strength in the loss affected pockets of business in Europe seen in 2024.”<\/p>\n

That is aligned with other forecasts and some catastrophe bonds issued prior to wind season already implied a slight softening in property catastrophe reinsurance and retrocession rates.<\/p>\n

Importantly, the analysts note that the industry seems more realistic on price discipline now than during the last softening of the reinsurance market.<\/p>\n

Saying that a, “reliance on loss trends being lighter than expected should be considered good luck rather than a sustainable source of earnings.”<\/p>\n

The analysts also highlight that should softening prove more sustained over the coming years, reinsurers may adjust their capital strategies.<\/p>\n

“If there is a prolonged softening of the market, the companies could choose to increase their capital returns to reduce surplus capital. In addition, if the market does soften materially, the reinsurers could choose to write less business and deploy less capital,” the analysts wrote.<\/p>\n

But adding that, “While we do believe that this scenario could emerge in the medium term, we see little pressure on the reinsurers to shift their policies for now, particularly with the reinsurance market still likely to produce high margins even if there is some softening in 2025.”<\/p>\n

That is also a positive, as during the last softening there was more evidence of reinsurers growing than pulling-back, especially in US catastrophe risks. A more disciplined response to a soft cycle will benefit all sides of the market and reducing capacity is one way to clearly signal that softening has gone far enough.<\/p>\n

However, it’s worth again reiterating that the competition that was evident in the market through the last soft cycle was a key accentuating factor and drove terms to become far looser than they should have been.<\/p>\n

So it remains to be seen whether the competitive nature returns and reinsurance capital providers look to source volume while rates are on the way down again, which would most likely necessitate a similar spiral to the one seen through 2013 to 2017 and could be viewed especially negatively by third-party investors that experienced it the first time around.<\/p>\n

It’s all about knowing when to put the brakes on in a spiralling market, to sustain pricing at risk-adequate levels and keep terms in a state where undue amounts of risk are not being assumed. The market got that very wrong the last time it softened. It’s going to be interesting to see how long memories are this time around.<\/p>\n

It’s worth adding a caveat here, that while we advocate for the market to sustain pricing at risk-adequate levels and terms at equitable levels that provide valuable coverage, without causing aggregation or over-exposure risks, we also advocate for efficiency in risk transfer and deployment of risk capital and if the market can continue to enhance that, there is no reason pricing cannot decline further in future.<\/p>\n

If the efficiency and cost of the reinsurance industry’s capital can be raised significantly, then the margins possible grow and thus pricing can be lowered while still attractive profits and returns can be generated. In that case the benefit should ultimately flow to the customers, through primary insurers and onto policyholders.<\/p>\n

But, with little in the way of meaningful change to the industries capital efficiency, or to the way risks are syndicated and placed, right now there seems little room to give without every price decrease eroding profit and returns for reinsurance capital providers.<\/p>\n

Therefore we hope the industry approaches renewals with a view to finding equitable levels of risk sharing and the cost of doing so, while ensuring all those in the market chain can remain profitable.<\/p>\n

At the same time the industry would be well-served to reconsider some of the initiatives it has shied away from that can enhance the efficiency of risk capital, as it’s long overdue and there is still a lot of wasted value absorbed by actors in the chain, that could perhaps be better directed into lowering the cost of coverage sustainably though innovation, efficiency and (dare we say it) disintermediation.<\/p>\n

Read all of our reinsurance renewals news and analysis<\/a><\/strong>.<\/p>\n

Only “small scale” reinsurance renewal softening seen for January 2025: J.P. Morgan analysts<\/a> was published by: www.Artemis.bm<\/a>
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This content is copyright to www.artemis.bm and should not appear anywhere else, or an infringement has occurred. While the expectation continues to be that prices will soften off their highs somewhat at the January 2025 reinsurance renewals, analysts at J.P. Morgan say they expect this will only be at “small scale”. The reinsurance market turn…<\/p>\n","protected":false},"author":1,"featured_media":881,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[13],"tags":[],"_links":{"self":[{"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/posts\/959"}],"collection":[{"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/comments?post=959"}],"version-history":[{"count":2,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/posts\/959\/revisions"}],"predecessor-version":[{"id":961,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/posts\/959\/revisions\/961"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/media\/881"}],"wp:attachment":[{"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/media?parent=959"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/categories?post=959"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/justiceapp.me\/index.php\/wp-json\/wp\/v2\/tags?post=959"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}