Berenberg expects rate increases in 2H 2022 to persist in loss-affected lines and programmes where loss experience has been elevated in recent years – and forecasts these to be in the low double-digit region.
Reinsurers have been able to obtain price hikes of 10-30% in programmes with poor loss experience. However, renewals varied widely, with risk-adjusted outcomes heavily influenced by loss experience, programme structure, and ILS capacity, which is increasingly available for higher layers.
However, given the current economic slowdown, Berenberg says some programmes could experience flat renewals and possibly rates could decline across some programmes, depending on experience, in areas such as such as marine or cargo.
Despite this, underlying loss ratios continue to improve, especially as prior year premiums earn through the bottom line which bodes well for underlying profitability and returns on capital for the sector.
Despite COVID-19 losses and a very costly 2020 and 2021 in terms of natural catastrophe ($89bn and $110bn respectively), overall reinsurance capital remained robust, the bank says.
Supply and demand dynamics are still the ultimate price driver, but the strong capital levels coinciding with a hard market demonstrates that the current rate discipline is not necessarily due to capital constraints but other drivers.
