A market survey of reinsurance buyers suggests they expect reinsurance prices to "remain flat or fall slightly" during 2019 reflecting intense competitive pressure amid increased take-up of alternative capital and abundant total capacity.
Rating agency Moody’s 2018 Reinsurance Buyers Survey found cedants citing abundant “reinsurance capacity and competition” as key reasons they expect prices to remain flat or decrease slightly in 2019, potentially stalling modest price hikes that followed the severe natural catastrophe events in 2017.
Brandan Holmes, Senior Credit Officer at Moody's, said: “While cedants foresee flat to declining prices during the 2019 policy renewals, their expectations have improved over the past three years.
"A number of cedants also intended to buy more reinsurance in 2019 to take advantage of its lower cost."
Most indicated that they consider alternative reinsurance capital to be an integral part of their reinsurance strategy, with some cedants planning to use more alternative capital during 2019. Alternative capital remains mostly suited to property-catastrophe risks, however some cedants think it will make inroads into casualty insurance over time.
Demand from primary companies has increased, as cedants take advantage of more affordable prices to increase reinsurance coverage and protect against earnings volatility, Moody’s noted.
“Some primary insurers were more exposed to 2017 natural catastrophe losses than expected, and see additional reinsurance as an efficient means of managing exposure and earnings volatility.”
Financial strength and reputation remain paramount in cedants' selection of reinsurance partners. However, cedants' selection decisions increasingly also take into account reinsurers' service levels and their ability to participate across a significant portion of the cedant's book.
