Fitch Ratings has maintained its global reinsurance sector outlook at neutral and expects underlying profitability to remain broadly stable in 2022 and 2023.
Demand for most reinsurance business should be relatively unaffected by the economic slowdown, says Fitch, noting that price increases and higher reinvestment yields should largely offset the impact of rising claims inflation.
The Ratings agency stated, “We believe reinsurers will be able to maintain underwriting profits around the 2021 level over the next 12 to 18 months.”
Fitch’s base case forecast is for the sector combined ratio to be about 96% for 2023, though it observes that sustained high inflation and the effects of climate change can make claims trends less predictable.
Property lines may face margin pressure if prices do not keep up with repair and construction costs, says Fitch, while long-tail casualty lines could meet reserve deficiencies, which in severe cases could weaken reinsurers’ capital.
Premium rate increases have accelerated in 2022 after a slowdown during the January 2022 renewal, with property premiums having increased the most in response to the effects of high inflation, more frequent natural catastrophes, and the war in Ukraine.
Fitch notes, “We expect property premium rates to rise further in 2023 as high inflation and climate change continue to push up claims. In contrast, casualty premium rates are likely to remain stable as casualty business benefits from a higher reinsurance capital allocation.”
As climate change increases the likelihood of more severe natural catastrophe events, there may be rising costs for the industry and increasingly volatile earnings.
As a result, Fitch expects more reinsurers to reduce their property-catastrophe exposure or even to cease cover, moving the industry closer to a true hard market where demand will not be fully met.