Analysts at JP Morgan are confident that the reinsurance market will show further hardening in 2023, despite already seeing several years of prices increasing.
The report states that at the 2022 mid-year renewals, the market saw some business unable to be placed at all, particularly in lower layers on reinsurance programmes. It adds that for the first time in many years, there is a clear supply-demand imbalance.
At the annual Monte Carlo conference, the concluding outlook on pricing was positive, says JP Morgan, with all the reinsurers expecting further price increases next year.
This was driven by industry large loss trends, suggests the report, such as the Russia/Ukraine impact, elevated levels of inflation, and the unexpected impacts of climate change.
It states that, “While demand remains strong, capacity is limited due to reduced equity because of higher interest rates, FX impacts (EUR vs USD) and some reinsurers reducing their risk appetite, particularly in cat exposed lines.”
Munich Re estimates that traditional reinsurance capacity will decline 8% year-over-year in 2022, the first reduction since 2018.
The report adds, “Looking at the loss experience in markets, 2022 has not been extraordinary overall but we have seen some historically large losses in selected markets. We expect that some of these events will impact Q3 results which could offset the positive effects of a benign Atlantic hurricane season so far.”
There are no industry loss estimates yet on Typhoon Nanmadol, though JP Morgan expects these to emerge in the coming weeks. A new note from Twelve Capital says it is likely to cause losses high enough to attach at least some higher-risk reinsurance programs.
The losses from Frances’s hailstorms in the summer of 2022 have increased in size from €4bn in July to €6-8bn by September, with the new industry estimate suggesting one of the most significant losses of all time in Europe.
JP Morgan anticipates that there will be further hardening in 2023, as European pricing reacted to the floods seen in 2021.
In addition, Australia has seen historical flood events in 2022, which JP Morgan calculates as the costliest event that Australia has ever seen, with the total loss increasing around ~30% from July to September 2022.