Hard reinsurance market trends to continue in 2024: BofA Securities

Analysts at BofA Securities Inc. are the latest to opine on the state of the reinsurance market and they conclude, as others have, that the hard market environment is likely to persist into 2024 and perhaps even beyond.

While rates might not increase anywhere near as significantly as they have through 2023, reinsurance renewals are anticipated to see hard market pricing throughout 2024.

The analysts explained in a recent report, “We see a continuation of the hard market in reinsurance helped by the lack of new capital inflows over 2023 and continued discipline across the market.

Despite significant pricing momentum achieved at 2023 renewals and discounting tailwinds, underlying combined ratios will remain broadly stable YoY which might surprise. However, this can be explained entirely by reinsurers strengthening reserves through very conservative current-year loss picks.

We expect buffer-building exercises to moderate next year, leading to a very strong improvement in our underlying COR forecasts for 2024.”

On renewal expectations, the BofA Securities analyst team are not expecting much more movement on price.

“We currently assume no further risk-adjusted rate increases at 2024 renewals, though we allow for earn-through of profitability improvements from 2023 renewals,” they explained.

But they also see a risk, as they are also not expecting significant volume growth from the sectors names.

However some of this may be driven by a continuing aversion to risk at the lower layers and to frequency risk, it appears.

“The growth outlook for reinsurance remains uncertain, in our view,” they wrote. “We see a risk of continued volume softness as reinsurers maintain discipline on coverage and terms and conditions, which might lead to even higher retention for primary companies.”

As a result, the analysts are expecting more margin expansion in reinsurance in 2024, as the higher priced market environment continues to earn through.

So, even if volumes are not rising, reinsurers could still turn a solid profit, loss activity allowing, it seems.

Which reads across positively for the insurance-linked securities (ILS) market, where volume opportunities are emerging as a result of reinsurers still-elevated risk aversion.

Read all of our reinsurance renewals coverage here.