Analysts at investment bank Berenberg have said they expect the London market to see further rate hardening throughout 2023 due to the coalescence of different factors, including inflation – the single biggest concern for the industry according to analysts.
Berenberg noted industry experts estimate that there could be $15bn-$25bn more demand for reinsurance in 2023, while at the same time capital availability will be significantly constrained due to trapped insurance-linked securities (ILS) capital, lower book values from rising yields and less appetite for nat-cats.
Insurance and reinsurance broker Gallagher estimates that reinsurance industry capital decreased by 11% at H1 2022 even before Hurricane Ian.
Analysts also believe that trapped ILS capital will put pressure on the cost of retrocession protection next year.
They noted: “This will in turn lead to additional upward pressure on reinsurance rates, and therefore could ultimately influence primary players’ appetite for writing nat-cat exposed property business as this will be more costly, in terms of both capital and earnings.
“We anticipate primary players could also be forced to move attachment points higher, in exchange for higher aggregate limit and tail risk protection, but this will come at a higher cost – thus benefiting the reinsurers.”
Berenberg added: “Overall, the price of lower earnings volatility could be worth paying and there are strong indications that companies will be willing to purchase more limit as a result. These dynamics have all the hallmarks of a sellers’ market, and we expect pure-play reinsurers such as Conduit – which is also not too reliant on retro – to benefit the most from this.”
