Analysts at Keefe, Bruyette & Woods have said that next year will see modestly better terms and pricing across lines other than catastrophe.
This, it said, will driven by a shortfall in catastrophe reinsurance capacity. Pricing, said the firm, will be primarily lower ceding commissions that reflect the prominence of quota share coverage.
The firm also said that many reinsurers willing to provide catastrophe capacity are likely also demanding bigger shares and better pricing and policy terms on other lines as part of the ‘price’ of writing catastrophe risk.
It also said that with a few notable exceptions such as workers compensation, public company D&O, and some excess casualty lines, it expected earned primary rate increases to outpace relevant loss trends, implying improving core underwriting margin results that should be augmented by the incremental impact of declining ceding commissions.
KBW also said that mostly quota share-focused casualty reinsurance profitability should include earned rate and exposure unit growth and declining ceding commissions. It also predicted moderately better underwriting returns on most other reinsurance lines.
These views are typical at a renewals where one type of reinsurance coverage is in-demand and reinsurers with the appetite for catastrophe risk might also find they can benefit in diversifying line opportunities as well.
A hard reinsurance market in cat risk can often translate into an opportunity to secure better terms across the whole book written. Given that inflationary trends affect all lines of reinsurance, it is not only catastrophe risks that see these effects. Cost of claims is on the rise and so reinsurance prices are unlikely to soften anywhere at this January 2023 renewals.