Fitch noted that reinsurance pricing turned decidedly positive at the mid-year 2019 renewals, following disappointing flat and generally stable rates at January.
Momentum has largely been supported by a capacity squeeze in the retrocession market, driven by the costly catastrophe losses in 2017 and 2018.
Losses were further exacerbated by the surprising amount of adverse loss development stemming from events like Hurricane Irma and Typhoon Jebi.
The April and June/July renewals also supported rate increases due to their focus on the Asia and Florida property catastrophe markets, respectively, each of which experienced considerable losses.
However, analysts at Fitch believe these rate increases will continue into 2020 due to the ongoing levels of disruption in the market.
This is particularly the case in property retrocession, they noted, as alternative reinsurance providers have retrenched as they deal with significant trapped capital from the recent catastrophe losses.
“Even with the costliest successive years on record of catastrophe losses in 2017 and 2018, overall pricing remains inadequate and well below recent risk-adjusted levels,” said Brian Schneider, Senior Director, Reinsurance at Fitch.
While pricing generally continues to at least keep pace with loss cost inflation, the underlying loss cost trends are deteriorating, Fitch explained, with rising social inflation, a worsening tort environment and weakening liability reserves.
This market fear should compel re/insurers to maintain underwriting discipline and manage risk appetite as they push for higher rates, analysts suggested.