Balance of power is with the reinsurers & more demand is coming: S&P

Analysts at S&P Global Ratings explained in Monte Carlo this week that the reinsurance industry remains in a hard market, especially in property catastrophe lines of business, with the balance of power sitting with reinsurers and more demand for protection expected to come, providing new opportunities.

Speaking at a briefing during the annual Rendez-Vous event in Monte Carlo, S&P Global Ratings analysts said that while there was expected to be new demand last year, it is still coming and could materialise at the next reinsurance renewals.

Johannes Bender, Director and Lead Analyst for Insurance Ratings explained the backdrop to market conditions as, “We and I think most market participants believe we are in a hard market environment, in particular in short-tail lines of business, in particular property catastrophe business.

“We believe that that momentum we have seen in 2023, which was remarkable in different aspects, that this momentum will continue heading into 2024.

“That’s clearly a good story for the reinsurance sector.”

He added that, “At the same time, we also observed some structural changes. We have seen more tightened and cleaner terms and conditions, reinsurers have been more explicit on inclusions and exclusions that will help in our view in upcoming claims discussions.

“The reinsurers have increased attachment points, have tried to avoid frequency losses, have reduced aggregate covers, and therefore we believe that is also a good story for the reinsurers heading into next year, also with regard to the cat losses that we already observed this year.

“We believe that the sector now is well equipped to earn its cost-of-capital.”

Taoufik Gharib, Senior Director and Lead Analyst for Insurance Ratings, went on to discuss how the reinsurers remain in control, in S&P’s view.

“We believe that the balance of power has shifted back to the reinsurers, unlike the prior year. But just to be clear, that’s in the short-tail lines, not in casualty yet. In casualty, pricing is still favourable, but capacity is available, so we think the hard market is in property cat.

“I think we are looking at a hard market in terms of short-tail lines,” Gharib said.

Before going on to explain that the rating agency believes more demand for reinsurance will also likely be seen.

Gharib said, “Last year, the market was talking about potentially up to $20 billion of new capacity coming to the market from the primary insurers, I think it never materialised, really during 2023.

“But it is just a matter of when, it’s not if. So, we think primary insurers will buy more protection.”

He went on to says that, “I think we’ll see demand coming to the market, whether it’s January, or at some point in the future, but I think there’s a potential solid demand that continues for the short-tail lines.”

Then stating that the rating environment may persist, “We think it will be a hard market going forwards. Hopefully the reinsurers have learned from the past in terms of their performance. So we think that’s sustainable, compared to say casualty lines.”