Relative to other sub-sectors of insurance, reinsurers continue to have a solid path, generating strong ROE, with robust underwriting and steady premium growth.
Morgan Stanley said it does, for now, favour reinsurers going forward, however, it explained that a re-evaluation will take place as the hurricane season draws closer.
The reinsurance market is expected to begin softening in 2025 as the attractive returns draw more new capital into the sector.
The underwriting margins for reinsurers are anticipated to reach their peak in 2024, driven by significant price increases and stricter terms and conditions established in 2023 and during the renewals in early January 2024.
The renewals in January 2024 reflected price adjustments in line with claims inflation, estimated between 5%-10% across most business lines.
From our perspective, reinsurers continue to generate strong ROE, with solid underwriting and steady premium growth. Relative to other sub-sectors of insurance, we believe reinsurers continue to have a solid path
Morgan Stanley
When considering the outlook for equities in 2024, investors should reflect first on what happened last year. Those investors with a positive outlook were never truly challenged as equities marched higher throughout 2023. This year will not be as easy.
Investors should expect more volatility, and times when an overall bullish view of the market will be in jeopardy. That said, there are five significant reasons to support why 2024 could be another good year for equity investors.
Another related topic in the report was the potential impact of cat bond and ILS issuance on reinsurance pricing.
Morgan Stanley observed that given the current state of the reinsurance market, some investors have additionally asked about capital inflow into the reinsurance market, specifically the ILS and cat bond issuance to date.
Although issuance YTD is relatively high, it is too early to assume the overall capital inflow will have a major impact on reinsurance pricing.
The average coupon yield for the ILS and cat bond issuance thus far appears to be declining, which could reduce investor appetite when compared to other investment alternatives under the current market conditions.
Property catastrophe reinsurance rates were likely to rise in the low double digit percentage range next year, while casualty – or liability – reinsurance would stay flat, due to increased competition in the market.
Price increases, and better terms and conditions in 2023, and to a lesser degree in 2024, will continue to support underwriting margins. Normalised for major losses, we expect margins to peak in 2024.
Some reinsurance companies were already retreating from the property-casualty insurance market but even the strongest reinsurers have now pulled back, largely through tightening their terms and conditions to limit their aggregate covers and low layers of natural catastrophe protection.
by Yana Keller
