Australian Insurance & Div Fins Weekly "Insights Insured - Issue #47" Chidgey

Research evidence excerpt

Australian Insurance & Div Fins Weekly "Insights Insured - Issue #47" Chidgey

1-Jun reinsurance renewals (IAG/SUN/QBE)

Property CAT reinsurance renewals at 1-Jun continued to soften with risk-adjusted ROL declining up to 25%, reflecting a

materially faster rate of decline than renewals at 1-Jan (-15%) and 1-Apr (-16%) according to Howden Re. This was driven

by abundant capacity with record reinsurance capital allowing supply to comfortably exceed demand. In historically

constrained areas like lower-attaching Florida layers, reinsurer appetite expanded significantly with the most competitive

pricing since COVID-19. However, there is a widening gap between falling reinsurance prices and the underlying risk

environment marked by a global backdrop of rising geopolitical risk and inflation. As a result, economic returns are

compressing with industry returns potentially falling below costs of capital by 2027 on its current trajectory where pricing

may no longer adequately compensate for risk. (Link)

UBS comment: Rapidly softening RI rates

Howden Re's commentary reinforces other signals that broader RI and commercial market softening is accelerating. This

echoes Lloyd's latest market message with strong warnings that the market is softening more rapidly than expected.

Abundant capacity is likely to see similar levels of RI rate reductions extend to 1-July renewals. We note that whilst the

pricing index shows a clear softening trend, it remains above levels observed in the last RI cycle (2013-17). However,

combined with a more benign US hurricane outlook, the risk of ongoing rate declines remains elevated. This is likely to see

trickle-down into primary insurer pricing over the year ahead, including SME which now remains at risk of softening further