Reinsurance pricing resolve is strong, no matter hurricane season impact: JPM

Analysts at J.P. Morgan are of the view that it doesn’t matter whether the Atlantic hurricane season proves impactful, or not, the resolve of the reinsurance community when it comes to pricing and terms is strong, with softening only expected to be slight even if the season results in below-normal losses.

The analysts say that, when it comes to the direction of reinsurance pricing for 2024, they “do not see even a light season changing resolve.”

Should the Atlantic hurricane season impacts come in below-normal levels, then the analysts conclude that there will be more of a debate around pricing of reinsurance for 2024.

But, they add that, “We think that it would be too early to mobilise additional capital, particularly from alternative sources but we would expect to see some minor softening,” should the light season scenario play out.

More important though, the reinsurance market’s terms and conditions would not be expected to suffer, if the light hurricane season played out.

J.P. Morgan’s analyst team explain that the reinsurance sector has, “clearly shown in their results that with the changes to terms, conditions and structures of reinsurance programmes that they are getting further away from ‘secondary’ type risks.

“The main evidence point is that the results of the US primary insurers have proved to be poor in 1H23 with the the impact of the convective storms having a material impact on their results whilst the reinsurers broadly came in below their catastrophe budgets for 1H23.”

But, even if hurricane season is benign, in terms of losses that the reinsurance market faces, “We do not believe that structures will change and expect that retentions will remain at consistently high levels or even increase in line with inflation,” the analysts state.

If the hurricane season proves to drive a normal level of seasonal impacts, then the analysts explain that, in reinsurance, “We would expect to see flat to small increases in pricing,” but add that their expectation is, “that structures do not change with the reinsurers avoiding the lowest layers in reinsurance programmes.”

On the other hand, should the 2023 Atlantic hurricane season prove more impactful than normal and drive more costly losses to the re/insurance industry, then further hardening of rates is the expectation for 2024.

“If the season is heavier than normal expectations, we believe that the reinsurers will seek to increase prices again,” the analysts explained.

Adding, “We expect if 2023 sees a materially above average load from hurricanes again, the market for property catastrophe risks will continue to increase despite US property catastrophe prices reaching record levels at the 2023 mid year renewals.”

Overall, the J.P. Morgan analyst team say, “We do not expect reinsurers to lose discipline as we get nearer to 2024,” adding, “Even if hurricane season produces a favourable outcome with below ‘normal’ levels of loss, we would expect to see a relatively stable outcome.”