Reinsurers deploying more capital to grow in hard market following record 2023: Berenberg

As per a new Berenberg report, reinsurers and alternative capital providers have become increasingly confident in deploying more capital to grow in the hard market following a record year in 2023.

According to Berenberg, this dynamic is currently manifesting in risk-adjusted rates fluctuating from modestly down to modestly up year-over-year across the January and April renewals, with brokers reporting more signs of pressure mostly on the top layers (retrocession) of reinsurance programmes.

“We would expect the absence of any large events to continue to put marginal pressure on pricing in forthcoming renewals (the opposite would also be true); however, we do not anticipate any significant deterioration in underwriting profitability, as strong demand for more cover should be a ballast,” Berenberg explained.

Elsewhere in the report, the firm also stated that it continues to favour (re)insurers that can surprise to the upside on capital returns, as it believes this will become a more important part of total shareholder return.

Berenberg continued, “We see optionality for additional capital returns by Munich Re given higher profitability, very high solvency and potential for capital optimisation. We are also ahead of consensus in forecasting a USD0.5bn buyback by Swiss Re for FY 2024E, following its return to growing the ordinary DPS by c6% in FY 2023, a trend that we expect to continue in FY 2024E.

“We forecast an all-in cash yield of 6.8% for Swiss Re. We also expect Beazley to continue with special buybacks and forecast a very attractive all-in cash yield of 7.1% for FY 2024E, against a historical yield of 2.3%.”

Speaking on the excess & surplus (E&S) market, Berenberg observed in its report that as risk exposures become more complex and dynamic, due to (but not exclusively) more frequent smaller-scale weather events, “the E&S market will be structurally better placed to deal with the risks and thus will continue to capture market share”.

Growth in the E&S market over the past six years has “significantly outpaced” the wider US property and casualty market.

“The profitability of the E&S market improved from a 100.2% combined ratio in FY 2022 to 91% in 2023, despite the record-high losses from severe convective storms in the US, as pricing more than kept up with loss cost trends,” Berenberg said.

Beazley, Conduit Re and Lancashire are reportedly among the key beneficiaries of this trend relative to the size of the business.

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