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P&C reinsurance buyers expecting 5% price rise off COVID-19, nat cat losses: Moody’s

11th September 2020 - Author: Charlie Wood

Respondents to a Moody’s survey of P&C reinsurance buyers are expecting reinsurance prices to rise by at least 5% next year.

Reinsurers’ profitability is generally anticipated to take a hit from factors such as COVID-19, more volatile natural catastrophe losses and capacity constraints.

Over 90% of respondents had an expectation for price increases in 2021 across all lines, while none foresaw a decrease.

In contrast, less than 50% expected price rises last year, while some had expected prices to fall.

“Some respondents commented that price increases could move even higher next year if financial market conditions deteriorated in the second half of 2020, or if this year’s US hurricane and wildfire seasons result in higher than expected losses,” said Brandan Holmes, a Vice President and Senior Credit Officer at Moody’s.

With over 80% of buyers expecting prices to rise by more than 5% across most lines, price increases this year are expected to be strongest for cat-exposed property reinsurance, reflecting rising capacity constraints.

While some buyers expect to purchase more reinsurance in 2021, Moody’s says this increase will be smaller than in the last two years, as higher prices dampen demand.

Most buyers expressed an expectation for loss cost trends on casualty business to continue rising, although the responses suggest that demand for casualty reinsurance will remain steady.

Lastly, the deteriorating risk environment seem to have made reinsurers’ financial strength and reputation a more important consideration for some buyers.

Some of the larger insurers that responded to the survey also named bespoke services and support for new product offerings as key features of their core reinsurers.

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