Reinsurance News

Hard market to be extended by Ukraine, inflation & supply chain disruption

2nd May 2022 - Author: Steve Evans

There’s no prospects of a return to a softening cycle in global commercial insurance prices while the current global volatility and its inflationary effect continues, the comments of a range of industry personalities who spoke with the Financial Times imply.

hard-market-challengeInterviewed by the FT recently, industry leaders seem to agree that commercial insurance prices are likely to keep rising, with the hardening trend either set to accelerate again, or simply to be prolonged and extended, at similar rates to what we see today, while uncertainty and volatility remain heightened.

Which has a read-across for reinsurance pricing as well, with the hardening of reinsurance rates also likely to now be prolonged due to ongoing global crises in geopolitics, capital markets and supply chain effects.

Commercial insurance pricing has already hardened considerably over the last few years.

But, with continuing pressure on insurer and reinsurer profitability now exacerbated by global events, it seems unlikely the trend will revert back to the softening cycle we saw a few years ago, until volatility and external pressures are reduced.

Tremor - The modern way to place reinsurance

Convex CEO Stephen Catlin told the FT that, “It’s not a pretty picture,” adding that he believes global re/insurance price rises could speed up again as a result of the numerous factors heightening volatility today.

The ongoing conflict in Ukraine after Russia invaded the country is one factor likely to affect commercial insurance and reinsurance prices.

Already, the conflict is thought likely to drive one of the largest specialty lines industry losses on record, with it almost certainly set to become the largest political violence related insured loss.

But the fall-out from the conflict and the fact it is driving societal risk aversion higher, while affecting other countries and also driving inflationary effects, plus sanction related impacts, could prolong any effect caused by the industry loss alone.

Catlin believes re/insurers need to price adequately to reflect the expectation of higher costs in the future, something we’re also seeing in property catastrophe reinsurance business.

It’s not about “filling your boots” as an insurer, Catlin told the FT, rather it’s about staying in business, he explained.

David Flandro, analytics chief at Howden, said that inflation, conflict related losses and risk aversion are all set to “create a longer hard market.”

Airmic’s CEO Julia Graham said to expect tough times for insurance buyers to continue, as price rises persist, but also noted this could lead companies to look to captives in greater numbers.

Marsh representative Christopher Lang said that an “elongation” of the hardening trend was more likely than rate acceleration.

But Mactavish CEO Bruce Hepburn told the FT that price increases could run for a number of years, perhaps longer than anyone active in the industry may have seen in the past.

All of which suggests we’re in uncharted territory, as far as hardening insurance and reinsurance markets go.

Alongside the fall-out from the conflict in Ukraine and the sanctions on Russia, inflation is rife for many other reasons, while supply chain disruption is also continuing at-pace.

China’s continued mission to achieve zero-Covid is one driver of this, with lockdowns spreading in the country and significant effects already felt in supply chains and logistics.

With shortages in certain commodities now expected, including micro-chips and other items that are essential to global manufacturing and technology, while a global food crisis is also on the horizon, there are broader effects which are likely to cause inflationary pressure for a time.

In a world of rising risk awareness and aversion, plus under the constant threat of climate-related risks, this all suggests softening of insurance or reinsurance rates is unlikely to be seen until risk declines and volatility is less apparent.

What could cause rates to soften, or at least to stop rising and revert to the deceleration we had been seeing last year?

A cessation of geopolitical and capital market volatility and uncertainty would certainly help, bringing the world back to a more risk-off position.

Supply chains resolving their bottle-necks would also be helpful, in taking pressure off prices and lowering inflation.

But inflation does feel baked into the forecasts for a time now, which may drive claims inflation and require insurers to cover this in their pricing as well.

Periods of great uncertainty tend to have ramifications for almost every industry, with insurance and reinsurance being so integral to finance and society it is no surprise there are ramifications for pricing.

Print Friendly, PDF & Email

Recent Reinsurance News