According to Moody’s most recent Reinsurance Buyer Survey, an increasing number of insurers expect to purchase less coverage for 2024 due to higher costs, which will in turn force them to retain even more risk, making their results more volatile.
Despite respondents’ expectation that loss costs will increase, only 22% plan to buy additional property reinsurance cover, and just 6% intend to purchase more casualty protection.
Meanwhile, Moody’s survey revealed there has also been an increase in the number of insurers considering reducing their protection, particularly in casualty and US/Caribbean property lines.
“The primary reason for insurers choosing not to increase their protection is the higher cost of reinsurance,” Moody’s explained.
The rating agency continued, “Conversely, while primary groups had differing forecasts regarding interest rates, the majority stated that the interest rate environment, which impacts their investment income, would not significantly affect their purchasing decisions for 2024.”
Moody’s noted that with traditional reinsurers tightening capacity, and some completely exiting the property catastrophe market, primary insurers have emphasised the importance of “long-lasting relationships and the availability of a comprehensive range of coverage when selecting their reinsurance partners.”
The rating agency continued, “Insurers particularly value willingness and capability to maintain capacity, even in difficult times, as a critical factor in their decision-making process.
“Throughout this year, reinsurers have sought to reduce their exposure to secondary perils and enhance their profitability by raising the attachment points on their excess of loss programs, which set the threshold at which they begin to pay claims.”
Despite meaningful increases seen already, over 50% of the survey respondents said further increases in attachment points were likely or somewhat likely in 2024.
Moody’s believes this is likely a result of current inflationary trends, including rising reconstruction costs.
Elsewhere, 64% of cedants consider it unlikely that they will buy more aggregate reinsurance cover, which protects against cumulative losses beyond a predetermined attachment point, in 2024. This is in contrast to last year’s survey, when nearly half of respondents said they would buy more aggregate cover.
Moody’s explained that this change is most likely a result of the higher cost of excess of loss protection.
Additionally, only 21% said they were likely to buy more quota share protection, where the reinsurer agrees to cover a fixed percentage of losses in exchange for the equivalent share of the insurer’s premiums.
Moody’s concluded, “Because of changes in reinsurance programs and rising claims costs, primary insurers are likely to retain even more risk into 2024, making their results more volatile.
“Insurers with limited or no geographic diversification are likely to be more affected by this change. However, in our view, a number of globally diversified players have managed to reduce their gross exposure to offset the higher level of retention.
“Growth in alternative reinsurance capacity has been limited in recent years, and we do not foresee a rebound in 2024. Similarly, 78% of surveyed primary groups do not anticipate increasing their use of alternative capital protection over the coming 12-18 months.
“However, there has been an increase in the number of primary groups interested in using collateralized reinsurance. We believe this trend has emerged as traditional reinsurers prices have increased meaningfully. Catastrophe bonds issuances are also expected to continue growing into 2024, while the appetite for sidecars and insurance-linked funds is more limited.”
