Buyers expect reinsurance prices to remain flat or rise moderately during 2020, according to a survey by Moody's.
That represents a shift, Moody's said, as its survey last year showed an overall expectation of flat-to-lower pricing.
The survey, which polled about 40 reinsurance buyers, or cedants, at nonlife and composite insurers across the globe, said expectations for potentially higher prices reflects market participants' reassessment of risk-adjusted returns following two years of heavy natural catastrophe claims. Buyers anticipate price pressure to be strongest for casualty reinsurance because of claims inflation in some liability classes, Moody's said.
As compared to 20% in 2018 and 13% in 2017, 43% of this year's survey's respondents expect property reinsurance prices to increase. Only 20% expect property reinsurance prices to fall, compared with 56% in 2018 and 67% in 2017.
On the casualty side, 74% of respondents expect prices to rise, up from 27% in 2018 and 4% in 2017.
"This shift in buyer expectations suggests a meaningful change in the trajectory of reinsurance prices," Moody's said in the report.
But price increases may be just confined to loss-affected lines of business and geographies. Moody's noted that the growing sophistication of buyers' analytics has enabled this in part because it has led to more targeted price negotiations. Buyers with large European books of business are expecting minimal, if any, price increases, according to Moody's.
While most cedants expect to buy the same amount of reinsurance in 2020 that they had in 2019, the survey detected a modest increase in demand for reinsurance. Moody's said a small number of buyers plan additional reinsurance purchases in 2020 to limit earnings volatility. The survey also showed that almost 70% of cedants said they were "somewhat likely" to buy additional aggregate cover, and that demand for cyber reinsurance is growing.
Although most buyers expect the amount of alternative capital-backed reinsurance they buy to remain the same, those that plan to use more outnumber those expecting to buy less, with collateralized reinsurance remaining the preferred form.
