In the upcoming 4Q 2023 results for the insurance sector, JMP Securities expects positive results driven by strong market-to-market tailwinds on investment portfolios and minimal catastrophe losses.
However, the focus remains on forward-looking factors, including loss cost amplification, casualty reserve pressure, sustainability of prime pricing, and ongoing market disruptions in personal lines.
Disaster activity in 4Q23 was relatively light, with incidents such as flooding and convective storms in the eastern and southern United States, Hurricanes Norma and Otis in Mexico, and convective storms in Europe.
Reinsurers are expected to benefit from higher insurance retention rates at recent renewals, while primary insurers may experience concentrated losses.
Loss lines face increasing scrutiny due to social inflation, which raises concerns about reserve shortages. The industry has addressed these concerns since the Monte Carlo renewal discussions, with a particular focus on victims in the United States, particularly in the 2015-2019 accident years.
The return of social inflation after the pandemic has created uncertainty about the adequacy of reserves in the years 2020/2021.
While these years have generally been viewed favorably, there is a risk of premature reserve releases or overly optimistic loss picks.
The impact on the casualty reinsurance market includes lower surrender commissions, which may reflect efforts to boost reinsurer margins and encourage insurers to push for higher initial rates.
In real estate markets, stability prevails after the orderly renewal on January 1, which was marked by fundamental changes in prices, terms and conditions during the 2023 reinsurance renewal.
Despite the significant price increases, the most notable changes included an increase in attachments and tightened terms and conditions.
This strategy has proven effective, with reinsurers recording strong returns despite catastrophe losses exceeding $100 billion. The industry seems determined to maintain these changes, with little or no concessions noted in the recent revamp.
Pricing trends indicate a flat to slightly upward trajectory, with the US experiencing relatively stable conditions and Europe seeing more pronounced increases, which are partly due to catching up on muted movements in the previous year and reactions to various disasters.
