No major headwinds to reinsurance pricing for 2024: Morgan Stanley

As 2024 fast approaches, analysts at investment bank Morgan Stanley currently don’t see any sign of headwinds to affect reinsurance pricing for the renewals and into the next year, with capital supply remaining balanced in the sector.

Results seen so far for the end of the third-quarter “underscore the solid secular positioning for the reinsurers as we head into 2024,” the analysts explained.

Continuing to explain, “As supply of capital remains balanced, we do not see major headwinds to pricing in 2024.

“At the same time, tighter terms & conditions are unlikely to disappear in 2024, thus shielding the reinsurers from persistently onerous losses.”

With the industry’s’ capital position remaining solid but balanced, the analysts expect that reinsurers will see continued solid demand and stable pricing, which bodes well for the insurance-linked securities (ILS) market as well.

It suggests any capital raising that ILS funds can do before year-end, could be positively put to work at rates and pricing which maintain the elevated levels of returns that have been achieved in recent months.

Morgan Stanley’s analyst team said, “Despite the recent pullback, there are no changes in the positive fundamental trends for Bermuda reinsurers while the European reinsurers are also well positioned for 2024.”

Adding, “We see further upside from here.”

Even in property catastrophe risks, the analysts are not anticipating a significant increase in reinsurance sector capital availability.

Explaining that, “Although we saw some traditional capital raising earlier in the year, the impact to the overall capital position should be limited for the property-CAT space.”

Meanwhile, the Morgan Stanley analysts note that, so far, collateralized reinsurance seems to be a smaller component of insurance-linked securities (ILS) sector capital raising, while the catastrophe bond market is continuing to grow, but in an orderly environment.

The analysts believe that, looking forward, elevated loss levels are to be anticipated, given natural catastrophe trends, plus continued construction in high hazard areas, and rising replacement costs.

“This trend is likely to continue, further eroding capital base. As such, we continue to see a supportive pricing environment for the reinsurers,” Morgan Stanley’s team said.