The quietest U.S. Atlantic hurricane season in decades will lead to a low double-digit fall in related catastrophe reinsurance pricing in the key 2014 renewals, Fitch Ratings says.
Noting that the Atlantic hurricane season ended on Nov. 30 without the formation of a single major hurricane, Fitch said the season also had the fewest named hurricanes since 1982. This will maintain the pressure on U.S. excess of loss catastrophe pricing, which has already weakened in part due to surplus capacity from the growth of catastrophe bonds and other reinsurance alternatives.
According to Fitch, a low double-digit price drop in the January renewal would be in line with the declines reported at the mid-year 2013 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,” said in a statement.
Lower catastrophe payouts will boost 2013 earnings for reinsurers, Fitch said, noting that the extra profit is likely to be returned to investors through dividends and share buybacks, rather than being used to further bolster capital.
Fitch said that reinsurance prices in Europe, Canada and Australia will likely rise where reinsurers experienced a high level of losses for wind storms and floods. In unaffected international catastrophe reinsurance lines, these losses should limit price softening to a single-digit drop, Fitch said.
“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.
Source: Fitch Ratings