Reinsurance pricing should be supported by another year of heavy losses and the subsector's continued weak return on equity, according to JP Morgan, with rates expected to be the same or slightly better than last year.
The reinsurance sector is still trying to recover its profits after a period of historically weak pricing, losses from liability lines and high levels of losses from natural disasters.
Any need to increase disaster relief could put further pressure on potential ROE exacerbating the need for higher tariffs.
The analysts added that prime insurers also benefited strongly from higher rates in the commercial P&C sector, but any slowdown in rating trends and signs of inflationary pressure could also increase demand from insurers looking to reduce risk retention and buy reinsurance.
Besides, alternative capital is not expected to flood the industry and put pressure on prices as it has in previous years, as JP Morgan notes that the share of capital provided by alternative capital has remained virtually unchanged since 2018.
This trend is likely to continue due to ILS's recent poor earnings report following an elevated period of losses from natural disasters, which has affected demand for this business.
Moreover, uncertainty about rising payouts due to inflation and an uncertain macroeconomic outlook also limited the alternative supply of capital.
According to JP Morgan, the higher interest rates and higher yield expectations also potentially reduce the attractiveness of the relative spread earned on alternative capital.
Source: https://forinsurer.com/news/22/02/14/40890
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