“The current market environment is arguably a generational opportunity for reinsurers, with risk-adjusted rate increases across property-catastrophe lines at their highest levels since the advent of catastrophe modelling and quantitative risk adjustments,” suggests Howden Tiger.
Citing its own data, Howden Tiger said that global property-catastrophe rates increased by over 50% cumulatively over the last two years.
“Concurrently, reinsurance markets have seen the most pronounced capital squeeze since 2008, owing to higher interest rates and investment losses – although capital is now recovering and is estimated to reach 2021 levels by the end of 2023,” the firm said.
Howden Tiger noted that alongside the volatility inherent in an elevated inflationary environment, “underwriters today must additionally contend with increased reinsurance and retrocession costs at higher retentions.”
The firm continued, “Overall shortages in reinsurance capacity, alongside higher loss volatility, have driven higher retained losses for cedents.”
For nat-cat in particular, significant recent increases in per-event retentions, in addition to a drop- off in aggregate cover, means cedents now bear a greater share of risk, Howden Tiger explained. The firm added that cedents retained around 54% of nat-cat losses over the 2001-2022 period.
This pro-forma retention was determined using Howden Tiger’s database which indicates a marked and consistent increase in retentions in the period 2017-2022.
Howden Tiger went on, “Unlike generic consumer price indices, claims are exposed to a greater number of inflationary pressures. For example, nat-cat-exposed lines may face ‘excess inflation’ due to factors such as elevated materials costs and fraudulent activity which can amplify claims costs above widely cited consumer price indices.
“In addition, exposures change over time, making it more complex to assess claims inflation and rendering it difficult to make like-for-like inflation assessments between lines of business. Further complicating this, many programmes have been restructured as overall market capacity has fallen.”
