Reinsurance rates for property catastrophe business will increase well over 10% at upcoming renewals in January 2023, Fitch Ratings Inc. said in a statement Wednesday.
Rate hikes will be most pronounced in regions worst hit by natural disasters this year, including Florida, Australia and France, Fitch said.
Insured losses of about $120 billion this year and increasing frequency and severity of natural disasters are driving the double-digit rate hikes, the note said.
Hurricane Ian is estimated to have caused between $35 billion and $55 billion in insured damages, making it one of the costliest natural disaster events ever.
Reinsurance capacity for property catastrophe risks will be squeezed 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 further upward pressure on premium rates for property taxes and tighter terms and conditions are expected, including a move to named perils coverage, higher insurer retentions and lowered limits, Fitch said.
“Nevertheless, we believe that demand for property catastrophe reinsurance in the 2023 renewal season will be broadly met, except for Florida,”; Fitch said.
Specialty businesses such as marine and aerospace that have been affected by the war in Ukraine will also see “significant” premium increases, Fitch said.
Motor hull prices will also increase due to spare parts price inflation, but increases for liability lines should be more subdued as more reinsurance capacity is directed to this part of the market, the note said.
“Claims inflation has not yet been driven up by social or headline inflation but we expect this to change in 2023, with negative implications for issue margins and reserves,” Fitch said.
Underestimating claims inflation for liability lines is a significant risk for reinsurers, it said.
Increased rates and higher returns on reinvestment 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.