With insurance and reinsurance industry losses from catastrophe events once again above the $100 billion mark in 2021, price increases at the key January 1st, 2022 renewals could be stronger than in previous years, according to S&P Global Ratings.
In recent years, price momentum at 1/1 has disappointed reinsurers amid heightened losses from natural catastrophes, the lower for longer interest rate environment and the impacts of systemic risks such as the pandemic and climate change.
But with the Jan reinsurance renewals fast approaching, analysis by S&P’s Ben Dyson suggests that the heavy nat cat experience in the second-half of the year, which includes Hurricane Ida and the European floods, could push reinsurers for stronger price rises.
Over the past month or so, market consensus points to double-digit property catastrophe rate increases, with the most dramatic rises expected in loss-affected lines – a view reflected in the results of our most recent reinsurance market survey.
S&P feels there are some signs that reinsurers will get closer to what they want in this upcoming renewal season.
According to Johannes Bender, director of insurance ratings at S&P Global Ratings in a recent interview, while reinsurance price rises lost some momentum at the mid-year, this has again picked up owing to the spate of catastrophe losses in H2.
While a reinsurance buyer told S&P Global Market Intelligence that reinsurers’ resolve to drive up prices might be slightly firmer than in previous years.
As noted by S&P, there’s been a lack of European catastrophe activity in previous years and as this market dominates the January renewals, property cat rate increases have failed to meet expectations.
However, there’s been an uptick in activity in 2021, driven mostly by the heavy floods in Germany and other parts of Europe in Q3, which is estimated to drive industry losses of $13 billion.
This, coupled with Winter Storm Uri in the U.S. in Q1 and heightened losses from secondary perils around the world, suggests that reinsurance rate increases at Jan 1st, 2022 may be stronger than in previous years.
But despite this, the ratings agency still doesn’t expect the reinsurance industry to meet its cost of capital next year.
“The reinsurance industry has only earned its cost of capital once in the last four years, and this was due to improved investment returns in 2019, according to an Oct. 28 report from S&P Global Ratings. The rating agency does not expect the reinsurance industry to return its cost of capital in 2021 and believes it will struggle to do so in 2022,” said Dyson.
Exactly what happens at 1/1 remains to be seen, but reinsurers will be hopeful of some meaningful increases against a backdrop of heightened cat losses, higher risk perception and greater demand for protection.
