Not a supply driven hard market, further gains expected: Flandro, HX

Not a supply driven hard market, further gains expected: Flandro, HX

The existing hardening of reinsurance rates is not being driven by any supply of capital related aspects, unlike previous firming, which alongside a number of other drivers implies that further rate gains are to be anticipated, although its more tough to tell just how much, David Flandro of HX Analytics explained recently.Speaking with analysts from Morgan Stanley and their customers, David Flandro described that he believes there are lots of drivers to recommend that reinsurance rates will continue to firm at the mid-year and possibly beyond into 2022.
While capital is not low, in the exact same way as previous hardening of the reinsurance market, in addition Flandro stated that balance-sheets are perhaps less stretched.
However, while less stretched on a capital and operations basis, reinsurance business are facing higher restrictions on the lucrative deployment of their capacity than maybe ever before, driven by requirements of score agencies and entities such as Lloyds, Flandro explained.
All the while low investment yields indicates that lever has opted for reinsurance revenue making, which is driving the requirement for reduced combined ratios and greater underwriting revenues, if reinsurers are to make appropriate returns.
These elements, along with modifications in threat perception due to environment danger, increased disaster losses and rising secondary hazard expenses, also we d include as social inflation trends, are all viewed as catalysts to the firming being seen, by Flandro.
Rates still vary by line of business too and Flandro kept in mind that further enhancements are needed in home lines in specific.
Only the retro market is seeing true hard market conditions so far, Flandro thinks.
As an outcome, Flandro sees lots of support for better reinsurance pricing at the June and July mid-year 2021 renewal season.
He really anticipates that more favourable enhancements in prices might be seen at the mid-year than in January or April, largely due to disaster losses, exposure and the coming hurricane season.
The midwest Derecho of 2020, the increasing effects of wildfires over the last few years and the February winter storms and deep Freeze in Texas are all seen as more catalysts for steeper rate boosts at the mid-year.
We d add that the ongoing litigation trends and difficulties in the Florida market are another specific catalyst for the June renewals to see more firming.
Will it be a difficult market at the mid-year? That stays to be seen.
Now, it seems the only re/insurers that will have a hard time to manage their reinsurance, at levels they d preferably like to be buying, will be some of those in Florida.
Possibly not hard, however absolutely still firm and it would be a much healthier reinsurance market environment if firming continues until the industry can really cover its loss costs, cost-of-capital, costs and a margin.

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