On the back of consecutive years of rate increases at the mid-year across most lines of property and casualty (P&C) reinsurance business, Fitch Ratings expects to see low double-digit price rises at the important January 1st, 2021 renewals.
Positive rate momentum in the reinsurance industry continued at the April and June/July renewals. While uncertainty surrounding the ultimate industry loss from the pandemic accelerated the trend, the reality is that the market was already hardening.
In a recent webinar, Fitch Senior Director and Global Head of Reinsurance, Brian Schneider, noted a renewed push for higher rates amid consecutive heavy loss years, persistently low interest rates, fading reserve adequacy, deteriorating loss cost trends, and the pandemic loss uncertainty.
“In addition, reinsurers are facing higher retrocessional pricing from constrained retro capacity, resulting from another year of trapped capital, potentially from pandemic related losses as well and reduced new funds from collateralized reinsurance,” said Brian Schneider.
Adding: “Terms and conditions are also becoming more favourable to reinsurers with reductions in ceding commissions, and less availability of multi-year protections.”
Ultimately, Fitch expects to see reinsurance rate increases of “low double-digit levels” at the 1/1 renewals, with more pronounced increases in the U.S. than Europe, continuing to be highest on the property side of the market.
“Casualty is getting better and really going through a hardening market as well. But, I would say on the property side we’re at a hard market currently, and we’ll continue to see increases come through there,” he continued.
Fitch expects to see more than $6 billion of COVID-19 losses on the non-life side of the business in H1 2020, and, would not be surprised if non-life losses from the pandemic hovered around the $3 billion mark for the second-half of the year.
“So, I think that will continue to help push the rate increases towards that low double digit level come January,” said Schneider.
Against the backdrop of a prolonged softened market state, which has now hardened for numerous reasons that have been intensified by the pandemic, as well as an active Atlantic hurricane and Pacific typhoon season, it’s an uncertain but interesting time for reinsurers.
While the emergence of a Class of 2020 is yet to materialise, capital raises have been plentiful as companies look to shore up balance sheets and take advantage of the current hardening market environment.