Lloyd's of London "turned a corner" at the start of 2018 with analysts predicting insurance prices will be on the rise this year.
Specialty lines, which represent around 70 per cent of Lloyd's premiums, saw some prices "firm" at 1 January renewals, brokers from Peel Hunt said.
Lloyd's reinsurance market delivered single-digit rate increases at the start of the year after hitting cyclical lows in 2017. This follows a string of natural catastrophes in the second half of last year – including hurricanes in the US and Caribbean together with a devastating earthquake in Mexico and brushfires in California.
And bigger rate rises are on the cards in the middle of the year as the US renewals in June and July kick in.
Peel Hunt analyst Andreas van Embden said: "There is a realisation that the specialty insurance market cannot perpetually lean on the profitability of property catastrophe reinsurance lines that have been primarily supported by benign catastrophe years, whilst fundamentally under-pricing risk exposures."
Cycle should harden
However, van Embden warned firms may be hesitant about risk exposure – i.e. choosing not to reinsure policies underwritten – until further rate rises filter through.
Ultimately, the cycle is finally moving in the right direction and there is enough economic evidence to suggest the cycle should harden further notwithstanding the excess capital in the sector.
Catastrophe insurance demand fluctuates based on recent events. During years when no natural disasters take place, associated demand for insurance cover falls and lower demand leads to lower rates. As most catastrophe insurance risk is then offloaded to reinsurers, in turn, reinsurance pricing is hit.
Last year global insurers were hit by their biggest losses on record, according to Munich Re. Natural disasters led to overall losses of $330bn (£244bn) of which $135bn were insured.
With analysts predicting increases in catastrophe pricing, this will make risk more attractive (because it is more profitable) to insurers.