Re/insurance pricing will stay ahead of claims cost inflation: JP Morgan

JP Morgan analysts remain confident that the overall P&C pricing environment should remain positive for P&C (re)insurers in 2022, providing attractive growth opportunities and staying ahead of claims cost inflation.

In particular, reinsurance pricing should be supported by another year of substantial losses and a still weak sub-sector ROE, according to JP Morgan, with rates expected to be similar or slightly better than last year.

The investment bank notes that the reinsurance industry is still looking to repair its returns after a period of historically low pricing, losses on liability lines and due to high levels of natural catastrophe losses.

Any need to increase allocations for natural catastrophe budgets could put additional pressure on potential ROEs, adding to the need for price increases.

Primary insurers have also benefited strongly from commercial casualty pricing momentum, analysts added, but any slowdown in rating trends here and indications of inflationary pressures could also increase demand from insurers looking to reduce risk retention. and to purchase reinsurance in certain relevant product lines.

Additionally, alternative capital is not expected to flood the sector and pressure prices as it has in previous years, as JP Morgan notes that the proportion of capital provided by alternative capital has remained relatively stable since 2018.

This trend is expected to continue due to the recent poor track record of ILS returns following an increased period of losses from natural disasters, which has impacted demand for this business from capital sources seeking diversified and differentiated returns.

In addition, uncertainty surrounding claims costs due to inflation and an uncertain macroeconomic outlook has also restrained the supply of alternative capital.

And at the same time, JP Morgan argues that higher interest rates and higher return expectations are also potentially reducing the attractiveness of the relative “spread” earned on alternative capital.

Printable, PDF and email version

Comments are closed.