Bermudians believes hard reinsurance market will persist: JMP Securities

During a recent trip to visit companies in the Bermuda insurance and reinsurance market, analysts at JMP Securities came away feeling there is an almost universal confidence in hard market conditions persisting.

“Those we met with last week universally expressed confidence and optimism in their outlook for hard market conditions, much more so than was the case just a quarter or two ago,” the analysts explained.

The reinsurance market had been anticipating a slow decelerating in pricing and that rates would move to a relatively flat level in 2022.

But now, “Confidence surrounding the market’s ability to continue to drive pricing increases for an elongated period has been emboldened by the ongoing loss pressures/events in the market,” JMP Securities’ analyst team believe.

Factors including continued weather and catastrophe losses, specific challenges in market’s such as Florida, the Ukraine invasion and inflationary inputs, are all steeling both insurance and reinsurance companies to ask for higher rates, it appears.

All of this is leading underwriters to be increasingly confident that rate increases will now be prolonged, compared to their beliefs around the end of 2021.

“The potential pricing deceleration that was seen in late 2021 has seemingly evaporated and confidence surrounding the market’s ability to continue to drive pricing increases for an elongated period has been emboldened by the ongoing loss pressures/events in the market,” the analysts said.

Everyone was expecting hardening at the January 2022 reinsurance renewals and that rate increases would be seen in April, as was experienced, and also at the mid-year June and July reinsurance contract signings.

Now, rate expectations for the mid-year renewals are growing increasingly confident and buoyant, while some are now expecting further reinsurance firming could be seen at the next end of year, January 2023 reinsurance renewals too.

During their discussions in Bermuda, the JMP Securities analysts said that they felt more optimism in the market around casualty lines, than property.

On property reinsurance, the analysts said that “it feels like real resolve has formed”, as more underwriters are now showing a resolve to reduce their property exposures if pricing does not reach the levels they need, suggesting firming pressure will persist for longer as capacity seeks out sustainable levels of rate to generate returns over the longer-term.

The analysts also noted that it is now felt that “pricing alone will struggle to restore target returns” in property reinsurance, which should mean further upwards pressure on pricing, as markets look to make property underwriting a more sustainable part of their businesses again.

Pricing is thought to have been “reinvigorated” by recent events such as the crisis in Ukraine and rising inflation, meaning, “nearly everyone we met with had “no doubt” that pricing was not decelerating and believed the cycle has been extended,” the analysts said.

While the analysts believe the re/insurance market fear’s over losses from Russia’s invasion of Ukraine could be overdone, “the market will take losses and they could be substantial for some of the specialists in the classes,” JMP Securities team cautioned.

Event clauses and wordings are once again coming to the fore, with discussion also on how the war in Ukraine will drive event based losses to some specialty classes of business and whether they will then aggregate to cause significant reinsurance impacts, or be retained by primary insurers.

Overall, the Bermudian insurance and reinsurance cohort appear primed to continue pushing for more rate at renewals and the analysts also said that Florida renewals at June 1st could be some of the most challenging in years.