Cat claims drive double-digit reinsurance renewal hikes: Fitch

Reinsurance rates for property catastrophe business will increase by well over 10% at upcoming January 2023 renewals, Fitch Ratings Inc. said in a note Wednesday.

Rate increases will be most pronounced in regions worst affected by natural catastrophes this year, including Florida, Australia and France, Fitch said.

Insured losses of about $120 billion this year and increasing frequency and severity of natural catastrophe claims are driving the double-digit rate hikes, the note said.

Hurricane Ian is estimated to have caused between $35 billion and $55 billion of insured claims, making it one of the costliest natural catastrophe events ever.

Reinsurance capacity for property catastrophe risks will be pressured in 2023, as selective capital inflows from existing or new risk carriers will be more than offset by partial or total withdrawals by other reinsurers, Fitch said.

Limited retrocession capacity will put additional upward pressure on property cat premium rates and tighter terms and conditions are expected, including a shift to named perils coverage, higher insurer retentions and reduced limits provided, Fitch said.

“Nevertheless, we believe demand for property catastrophe reinsurance during the 2023 renewals season will be broadly met, except for Florida,” Fitch said.

Specialty lines of business such as marine and aviation that have been impacted by the war in Ukraine will also see “significant” premium rate increases, Fitch said.

Motor hull rates will also increase due to spare parts price inflation, but increases for liability lines should be more muted as more reinsurance capacity is directed to this part of the market, the note said.

“Claims inflation has yet to be pushed up by social inflation or general inflation but we expect this to change in 2023, with negative implications for underwriting margins and reserves,” Fitch said.

Underestimating claims inflation for liability lines is a significant risk for reinsurers, it said.

Increased prices and higher reinvestment yields will help offset the effects of rising claims inflation and lower asset values. As a result, Fitch forecasts broadly stable underlying profitability for the global reinsurance sector in 2023.