Bermudian reinsurers face lower renewal rates than expected

14-12-2017

Reinsurance January rate increase expectations are slowly deflating in a late renewal season, analysts from Keefe, Bruyette & Woods (KBW) suggested following investor meetings with key Bermudian re/insurers.

Although reinsurance rates are clearly rising after the large nat cat losses of the third quarter of 2017, overall rate increase expectations continue to moderate from the initial post-catastrophe “euphoria”, and that trend should persist through the late renewal season, according KBW analysts.

Rate increases are led by retro, followed (in order) by loss-impacted US accounts, loss-free US accounts, and international. Multi-year contracts should moderate current increases’ impact on 2018 results but sustain rate increases over several years. Casualty reinsurance pricing sounds better than expected, and most Bermudians expect limited headwinds from US tax reform.

Executives consistently described the reinsurance renewal season as late. The delay is clearly based on different pricing expectations (or hopes). The analysts heard the phrase “Mexican Standoff” more than once.

Overall retro increases range from 20-40 percent (with some variance based on 2017 loss experience); loss-affected US accounts’ reinsurance rates are up 15-25 percent; non-loss-affected US accounts’ reinsurance rates are up 3-10 percent; and international reinsurance is flat to up modestly.

Alternative capital providers remain completely committed to the reinsurance asset class, according to KBW. Asset managers consistently reported that most longer-term ILS investors are still well in the black, and weren’t surprised by their exposure to the 2017 events. Capital that was either consumed by the losses or “trapped” (asset managers generally retain a multiple of estimated unpaid losses to cover potential adverse development) appears to have been more than fully replenished, and there are few signs of litigation that could have stemmed from less-educated investors.

Bermuda, Insurance, Reinsurance, January renewals, Rates, Keefe, Bruyette & Woods

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