Reinsurance renewals in 2023 are likely to see price increases as pressure builds from secondary risk losses, geopolitical concerns and capital uncertainty, according to a report released on Thursday by UK-based Howden Broking Group Ltd.
Fitch Ratings on Thursday maintained its neutral outlook on the global reinsurance sector.
The Howden report said climate risks, conflict and capital are the main drivers driving the mid-year renewal figures sharply higher.
“After years of overcapacity, loss uncertainty and the changing world order have combined to create some of the most challenging market conditions in two decades,” Howden Re chief executive Bradley Maltese said in a statement. “Pricing and risk appetite react accordingly.”;
The property/casualty market is in the eye of a “price, risk and inflation storm”, characterized by rising secondary risk losses and reduced capital, pushing up pricing, 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 hazards once considered ‘discrete’, such as business disruptions, supply chain failures and price shocks, can actually be linked and strike simultaneously,” it noted.
Market conditions led to a $46 billion drop in capital in the first half of the year, and capital could show a year-end decline for the first time since 2008, according to the report.
Fitch Ratings said in its report that the economic downturn should have little effect on demand for reinsurance, while price increases and higher returns on reinvestment should largely offset the impact of claims inflation.
The rating agency projects a combined ratio of around 96% for reinsurers in 2023, noting that continued high inflation and the effects of climate change make claims trends difficult to predict.
Property lines could face pressure if rates don’t keep pace with repair and construction costs, while long-tail accidents could see reserve shortfalls, which in severe cases could weaken reinsurers’ capital, Fitch said.