Reinsurance price hikes likely in 2023: HowdenPosted On: Sep. 8, 2022 9:27 AM CST
Reinsurance renewals in 2023 are likely to see price hikes as pressure builds from secondary peril losses, geopolitical unrest and uncertainties around capital, according to a report released Thursday by U.K.-based Howden Broking Group Ltd.
Fitch Ratings, meanwhile, on Thursday maintained its neutral outlook on the global reinsurance sector.
The Howden report said climate risks, conflict and capital are the main drivers that pushed this year’s mid-year renewal rates sharply higher.
“After years of excess capacity, loss uncertainty and the changing world order have combined to create some of the most challenging market conditions in two decades,” Howden Re CEO Bradley Maltese said in a statement. “Pricing and risk appetites are responding accordingly.”
The property/casualty market is in the eye of a “price, risk and inflation storm,” marked by rising secondary peril losses and reduced capital, pushing pricing up, the report said.
Unexpected losses from the COVID-19 pandemic and the war in Ukraine have contributed to changes in the reinsurance market, the report said. “Both events have revealed how perils once regarded as ‘distinct,’ e.g. business interruption, supply chain failures and price shocks, can in fact be connected and strike simultaneously,” it noted.
Market conditions led to a $46 billion reduction of capital in this year’s first half, and capital could show a year-end decline for the first time since 2008, the report said.
Fitch Ratings, in its report, said the economic slowdown should have little effect on demand for reinsurance, while price increases and higher reinvestment yields should largely offset the impact of claims inflation.
The ratings service projects a combined ratio of around 96% for reinsurers in 2023, noting that sustained high inflation and the effects of climate change make claims trends hard to predict.
Property lines could face pressure if prices don’t keep up with repair and construction costs, while long-tail casualty lines could see reserve deficiencies, which in severe cases could weaken reinsurers’ capital, Fitch said.