The Atlantic hurricane season ended without a major hurricane and with the fewest named hurricanes since 1982. That will lead to a low double-digit decline in related catastrophe reinsurance pricing in the 2014 renewals, according to Fitch Ratings.
Insurance industry earnings for the year likely will be higher, attributable to lower catastrophe payouts, but much of the extra profit likely would be paid to investors through dividends and share buybacks rather used to increase capital, Fitch said. As a result, this will add to downward pressure on U.S. excess-of-loss catastrophe pricing, which has been weakened due to surplus capacity from the growth of catastrophe bonds and other reinsurance alternatives, Fitch said.
A January renewal price drop in the low double-digits would be in line with other declines reported at the 2013 mid-year renewals. “We also expect to see more favorable terms and conditions for reinsurance buyers, including larger limits, multi-year agreements and better terms on the reinstatement of cover,” Fitch said.
Natural catastrophes, including wind storms and flooding, have hit Europe, Canada and Australia and reinsurance prices are likely to increase in those areas. In unaffected areas, catastrophe reinsurance pricing likely will experience a single-digit drop.
“We expect reinsurers to maintain underwriting discipline in 2014 and not look to increase capacity much further on catastrophe exposed programs either in the U.S. or internationally,” Fitch said.
Operating results for most reinsurers in 2013 likely will improve as a result of lower catastrophe losses, Fitch said. But capital levels already are strong, and limited demand will mean fewer opportunities to use new capital to generate additional business. “This means reinsurers are likely to increase the amount of capital they return to shareholders in the near term,” Fitch said.
