Risk-adjusted property-catastrophe reinsurance pricing up 5-10% as rate momentum moderates

HX, the digital, analytics, and advisory division of Howden Group Holdings, today announces a market update for 1 June reinsurance renewals alongside its Q1 2021 sector earnings overview.

Key takeaways:

• Risk-adjusted property-catastrophe reinsurance pricing rose by 5-10% on average at 1 June as rate momentum remained, albeit at a slower pace.
• Industry profitability returned to pre-pandemic levels in the first quarter of 2021.
• Inflation and interest rate headwinds have the potential to impact the future cost of claims
• Q1 combined ratios increased year on year as catastrophe losses rose.

Figure 1: Risk-adjusted property-catastrophe reinsurance rate-on-line index at 1 June

Source: HX Analytics

Data available in NOVA, the insurance sector’s premier financial and underwriting data platform, show risk-adjusted property-catastrophe reinsurance rates-on-line accelerated by 5-10% on average as rate momentum remained, but not at the pace witnessed in 2020. Pricing is now back above levels last seen at 1 June 2013 in the wake of Superstorm Sandy. Renewals varied widely, with risk-adjusted outcomes heavily influenced by loss experience, programme structure, and ILS capacity, increasingly available for higher layers. Casualty reinsurance pricing trends established at 1 January remained in place, with higher rates on underlying business enabling reinsurers to seek increases whilst mitigating pressure on ceding commissions.

The renewal took place against a backdrop of improving earnings and plentiful capital with stronger first quarter investment returns the main contributor to higher net income year-on-year. Combined ratios rose slightly compared to the first quarter of 2020 as losses from Winter Storm Uri more than replaced COVID losses reported a year ago. Carriers are preparing for an active catastrophe year in an uncertain macroeconomic environment. Inflation and interest rate fluctuations have the potential to affect balance sheets as the global economy navigates its way out of the pandemic.

Figure 2: Industry profitability recovered to pre-pandemic levels in the first quarter

Source: HX Analytics, company filings¹

¹Composite of 31 (re)insurance carriers. Underwriting result includes applicable fee income; investment result includes realised gains, excludes unrealised gains; other includes non-underwriting and investment activities including central expenses, interest expense, ancillary non-underwriting income.

Talking of the findings, David Flandro, Head of HX Analytics said: “Using NOVA placement data and wider market financials, we have identified the most prominent headwinds and key offsets driving the market at 1 June. The renewal was ordered if highly varied against a backdrop of significant uncertainty and elevated first quarter catastrophes.”

Michelle To, Head of Business Intelligence, HX Analytics added, “With NOVA, you can see well beyond today’s renewal snapshot; you can compare it to underlying primary pricing, to historical trends, to buyer behaviour patterns, and to macro-fundamental factors to name a few. This insight enables Howden clients to watch the market unfold in real time in a fully digital environment every day of the year.”