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MONTE CARLO, Monaco – The world’s largest reinsurers will push for substantial rate increases at Jan. 1, 2023, renewals because they say exposures are increasing and inflation in key markets continues to drive up claims.
Speaking during events and meetings at the Rendez-Vous de Septembre reinsurance meeting in Monte Carlo, this week, top executives at Munich Re Ltd., Swiss Re Ltd., Hannover Re SE and SCOR SE said rates will increase at year-end as demand for reinsurance is expected to increase but total market capacity has shrunk.
They declined to give specific predictions of the size of rate increases, though.
Premium increases for U.S. property catastrophe risks will be “very material” at year-end to reflect increased inflation and rises in exposure, said Jean-Jacques Henchoz, CEO of Hannover Re.
Rates will also rise globally, reflecting increased losses, he said.
“After a few years of heightened activity, we need to see significant adjustments to the terms and conditions,” Mr. Henchoz said.
Increased inflation will lead to economic volatility, said Torsten Jeworrek, chair of Munich Re’s reinsurance committee.
“The next renewal is much, much more challenging than last year's where we had a much more economically stable environment,” he said.
Worldwide dedicated reinsurance capital has declined from $475 billion in 2021 to about $435 billion in 2022, Mr. Jeworrek said.
Modeled loss costs, including materials, labor and other factors, have increased by 20% over the past 12 months for some property exposures in the United States, said Marcus Winter, president and CEO of Munich Re U.S. in Princeton, New Jersey.
“There have been price increases on the reinsurance side but not to the extent that is necessary, and that’s why we expect significant price corrections in the next 12 months,” he said.
Demand for reinsurance coverage in the U.S. is such that Munich Re saw some cedents returning to the market for additional capacity after the June 1 and July 1 renewals were completed and has already agreed to a Jan. 1, 2023, renewal contract with one of its cedents, Mr. Winter said.
Increased concentration of people in catastrophe-exposed areas, increased insurance penetration and increased wealth are the main drivers of higher reinsurance claims, said Thierry Léger, group chief underwriting officer at Swiss Re.
The effects of climate change will also drive up claims but not to the same degree as the other drivers, he said.
“Only 20% of the increase between now and 2040 will be due to climate change,” he said.
The reinsurance market is at a similar inflection point as the insurance market saw five years ago, when substantial, multiyear rate increases began, said Laurent Rousseau, CEO of SCOR.
“I'm convinced that today at this stage, we are seeing actually in reinsurance what we saw in insurance in 2017,” Mr. Rousseau said.