Mitchel Zelman on S&P Prediction: Reinsurers Will Continue Pricing Momentum During 2023
Will pricing momentum continue for 2023? According to many in the industry, reinsurers will likely continue to see pricing momentum throughout the year, and Mitchel Zelman, an E&S broker and industry leader, agrees. Here’s a look at what can be expected moving forward based on S&P Global Ratings reports.
A Focus on Pricing
The market saw near multi-decade high pricing increases at the start of 2023, much of what was experienced in 2005 after three hurricanes swept through the country. However, unlike that period, renewal price increases in 2023 were more broad and global rather than just focused on the U.S.
In the area of casualty reinsurance pricing, that remains firm after seeing compounded price increases spanning the last few years. That’s necessary, according to Mitchel Zelman, mainly because the cost of capital in the last few years has not been earned. The S&P report indicated that, from 2017 through 2022, there was only one year – 2019 – in which the industry earned its cost of capital. It is expected that 2022 also failed to miss the market.
The Challenges Behind the Industry
There are a number of challenges that have created this environment. That includes a higher frequency of natural catastrophes, including worsening overall severity to them. Additionally, wildfires, floods, and storms have continued to create threats. In addition, continued losses stemming from the pandemic are also prevented. The Ukrainian conflict is also causing risks in some U.S. casualty lines and other concerns, including ongoing inflation. This has led to numerous losses.
With so many challenges in the last few years, it is easy to see why price growth has occurred quickly. Yet, there is some concern over whether or not these pricing improvements are here to stay or simply enough to get through the current hardships and challenging headwinds.
What the S&P Warns
Taking a closer look at the S&P report, Mitchel Zelman notes that there is a lot of prediction and expectation ahead. The report itself notes that there is a tipping point coming. They believe a more stable industry is likely, though that depends on various factors, including reinsurers continuing to demonstrate their ability to earn their cost of capital sustainably. Looking at existing data for January, it does appear that this type of underwriting discipline was occurring, which is good news.
There are noted concerns in the market by investors. The increased frequency of large-scale losses from natural events and secondary perils is concerning and plays a role in pricing pressures. Many have adjusted their coverage and are not writing lower layers.
Casualty and Specialty Lines
Both sectors saw more casualty reinsurance capacity when considering casualty and specialty lines. That stems from reinsurers having an increased appetite in this area. There were more orderly renewals because insurers have benefited from compounded rate increases over the last several years. It is important to note that rate increases have moderated throughout the country in this area.
Property and Alternative Capital Markets
The property side of the industry continues to be constrained. That is due, in all likelihood, due to reduced competitive pressure from the alternative capital market. That industry is struggling due to numerous catastrophes and losses, which has created trapped capital. Innumerable investors have taken steps to minimize these risks by moving out of that market.
About Mitchel Zelman
Mitchel Zelman is an E&S broker, leader, and mentor with a passion for business. Mitchel recently joined the team at USG Insurance Services as the National Director: Brokerage Division.