No major headwinds to reinsurance pricing for 2024: Morgan Stanley

With 2024 fast approaching, analysts at investment bank Morgan Stanley currently see no signs of headwinds that could affect reinsurance prices for renewals and next year, with capital supply remaining balanced in the sector.

capital price-headwinds-reinsuranceThe results seen so far for the end of the third quarter “underscore the strong secular positioning of reinsurers as we approach 2024,” the analysts said.

Continuing his explanation: “As the capital supply remains balanced, we do not see any major price headwinds in 2024.

“At the same time, the stricter terms and conditions are unlikely to disappear in 2024, protecting reinsurers from continued costly losses. »

With the sector’s financial situation remaining strong but balanced, analysts expect reinsurers to experience solid demand and stable pricing, which also bodes well for the insurance-linked securities (ILS) market.

This suggests that any capital raising that ILS funds can achieve before the end of the year could be leveraged positively at rates and pricing that would maintain the high levels of returns achieved in recent months.

Morgan Stanley’s analyst team said: “Despite the recent pullback, there is no change in the positive fundamental trends for Bermuda reinsurers, while European reinsurers are also well positioned for 2024.”

Adding: “We see further benefits from here.”

Even in real estate catastrophe risks, analysts do not expect a significant increase in the availability of capital from the reinsurance sector.

Explaining that “although we saw traditional capital raisings earlier in the year, the impact on the overall capital position is expected to be limited for the real estate-CAT space. »

At the same time, Morgan Stanley analysts note that, so far, collateralized reinsurance appears to be a smaller component of the insurance-linked securities (ILS) sector’s capital raising, while the bond market disaster continues to grow, but in an orderly environment.

Analysts believe that high levels of losses can be expected in the future, given trends in natural disasters, continued construction work in high-risk areas and rising replacement costs.

“This trend is likely to continue, further eroding the capital base. As such, we continue to see a favorable pricing environment for reinsurers,” the Morgan Stanley team said.

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