The big four European reinsurers benefit from the continuation of favorable market conditions in 2024 on the back of strong mid-year renewal results, driven in part by a lack of new -flow of capital in the current difficult market cycle, according to BofA Securities analysts.
In contrast to past difficult markets, the current one has seen a remarkable lack of new capital entering the reinsurance sector.
Often, as rates are higher, new companies are formed, and existing reinsurers raise funds to take advantage of favorable price dynamics. While there has been some capital raised from existing players in 2023 it has been limited compared to previous tough markets and, so far, a ‘Class of 2023’ has failed to emerge.
For the big incumbents it was a surprise, say BofA analysts, “even if no one complained.”
Reinsurance rates have been on the rise since January 1, 2023, changes, and terms and conditions have also tightened throughout the year as reinsurers look to maintain discipline after years of high losses from major events and increased secondary perils, as well as the effects of inflation on loss costs.
The fact that reinsurance supply has not increased significantly ensures a strong mid-year turnaround for reinsurers, with supply generally meeting demand, despite proper price and structure as sellers stood firm.
As BofA analysts noted, re/insurance brokers described the mid-year turnaround as smooth and disciplined.
Throughout the year, including the June and July renewals, there was a remarkable decrease in the frequency of risk appetite from reinsurers, and as companies increased the points of attachment, the primary insurers is expected to take a larger share of Q2 catastrophe losses, with wildfires and other secondary risks accounting for most of the losses.
Recent loss experience, particularly from secondary risks that are less well modeled, is likely part of the reason new capital has not flowed into the space as much as in previous tough market cycles. .
In general, the analysts remain “strengthening the operational outlook for European reinsurers and expect favorable market dynamics to continue until 2024.”
“While we see limited scope for further margin expansion in 2024 (without any major losses), we see an increase in P&C Re top-line growth forecasts given attractive margins, ” the analysts continued.
It remains to be seen if capital begins to enter the sector in a meaningful way, and if it does, if it will be enough to affect price and discipline.
In particular property, a challenge for reinsurers to make money in recent years, many expect the tough market to continue through 2024 and beyond.
Also, most of the disaster loss experience usually occurs in the second half of the year, and while forecasts for Atlantic hurricane activity are somewhat mixed, it only takes one hurricane to make landfall in the wrong place, such as as seen in Hurricane Ian last year, significantly pushing up annual insured losses.