Moody’s has indicated that the insurance sector should be prepared for ‘broad-based price increases’ when renewals begin in April and July.
According to a note from the agency, the extent of price increases will depend on the balance of the supply of capacity alongside the demand for reinsurance coverage.
All in all, Moody’s found that the January reinsurance renewals confirmed its expectations that prices would rise in 2022, albeit at a slower rate than in 2021. This, it said, would be driven by reinsurers’ need to improve profitability and risk-adjusted returns, and helped by healthy primary rates and recent elevated natural catastrophe activity.
The note’s authors added: “Price increases were prompted in part by an industrywide reassessment of catastrophe exposure, including secondary perils, as well as by rising core inflation, rising litigation costs and their effects on claims payouts (social inflation), and a dramatically changing cyber market. Although price increases varied across the market, most lines were above loss cost trend.”
Overall, the agency found that January renewals were varied across business lines, but were generally favourable for reinsurers.
Moody’s wrote: “The price of property catastrophe reinsurance has been rising since January 2018, reversing a decline that began in 2012. Although price increases in 2018 and 2019 were not broad-based, both loss-affected and loss-free accounts experienced significantly higher prices in 2020.”
It added: “Reinsurance property catastrophe prices continue to increase driven by risk perception and tight capacity for retro coverage. Given underlying rate increases in casualty lines, plus favorable pricing in reinsurance lines, some reinsurers are seeking to increase their casualty and specialty businesses while maintaining or lowering their catastrophe exposure.”
The lessening effects of the coronavirus pandemic on the insurance sector were also given a mention, Moody’s noting that an increased number had been settled. It also mentioned that reinsurers were continuing to apply communicable disease clauses, while adding cyber exclusions to property treaties.
Forefront to people’s mind, Moody’s said, was the high catastrophe loses over the past five years. This has resulted in many reducing exposure and capital allocated to this business line.
Moody’s concluded: “As a result, primary insurers will need to pay higher prices to maintain similar coverage profiles or retain more risk as a result of higher deductibles and limited availability of aggregate reinsurance covers. In turn, this could raise earnings volatility for primary companies. Although the pricing trend is positive for reinsurers, property catastrophe prices still remain below 2012 levels and will need to increase further to provide adequate risk-adjusted returns, particularly as risks for the sector have risen.”
