Capital raised won’t be “overly disruptive” to renewal pricing: Morgan Stanley

Capital raised in reinsurance and insurance-linked securities (ILS) is not expected to be overly disruptive to pricing at the end of year renewals and into 2024, analysts at investment bank Morgan Stanley have said.

They note that expectations of single-digit reinsurance price increases at the January 2024 renewals should be viewed positively, given the particularly hard market that was seen a year prior.

“Despite the capital raising earlier in the year, there has been limited traditional capital entering into the Property-CAT space.

“Worsening costs from weather-related disasters, social inflation, regulatory environment and other factors are keeping some traditional capital from entering the market.

“This should play a stabilizing role on the 2024 pricing environment,” the analysts explained.

Adding that, in insurance-linked securities (ILS), “Capital raising surpassed $10 billion YTD, but this should have only marginal impact on the supply of capital.

“We do not expect the capital raising to be overly disruptive to pricing.”

Despite the record catastrophe bond issuance seen to date, Morgan Stanley’s analysts do not believe this segment of ILS alone will be too disruptive.

As they state, “Alternative capital from CAT bonds and ILS are still a relatively small portion of the total reinsurance capital base, and their impact to reinsurance pricing should be limited.”

Overall, they summarise, “Uncertainty around hurricane season and robust ILS capital raising this year have not deterred our optimism for the reinsurers. We expect durable pricing, stable capital positions, and solid book value growth to support share price performance of reinsurers in 2024.”

As we also reported recently, analysts at J.P. Morgan said that there are no signs or signals that a significant influx of alternative capacity will come in to disrupt the hard reinsurance market, particularly in the collateralised reinsurance space.

Last week we did see the launch of a $400 million collateralised reinsurer, Monarch Point Re, by AXIS and Stone Point, but with this having a casualty focus it won’t be a factor in helping to moderate property cat rates.

Also of note, AM Best recently said that investor appetite would determine the length of the hard market.