Following the events of Hurricane Ian, the reinsurance industry is sitting on the cusp of a far harder market for pricing heading into 2023, suggests a report from JP Morgan.
The report observes that it is difficult to truly assess how much prices will increase, particularly as the January 1 renewals tend to focus on European business on the whole.
Though it adds that prices were already likely to see material increases, even before the impact of Ian. This was mainly due to climate-related concerns, alongside inflation shrinking capacity as insured values increase, among other opportunities for capital providers.
Therefore, JP Morgan writes, “we do not think it overly optimistic to assume that pricing levels take a material step up in the coming year.
“Although the 1 January renewals have a slight European focus versus other regions, we expect that price increases will move globally rather than regionally given poor loss experience in Europe in the last 2 years.
“Reinsurers will be determined to push primary insurers’ retentions up to avoid some of the losses seen in recent years with Europe contributing to global catastrophe losses significantly in 2021-22 with the Central European floods and the French hailstorms the major issues.”
The report notes that following previous events similar to Ian, prices saw significant increases. Using post-event movements in the Guy Carpenter Rate on Line index, JP Morgan makes the following conclusions.
In 1992, following Hurricane Andrew, prices increased by 65% in 1993. Other major events included Hurricane Katrina in 2005, when prices increased 37% on a global basis and 76% for US business.
JP Morgan concludes, “it would be a bold view to suggest that prices will increase in the same magnitude, but if we look back at those previous spikes in pricing, capital also came into the industry at the same time with the class of 1993 (RenRe, Ace, Partner Re, etc), class of 2001 (Arch, Axis, Allied World, etc) and class of 2005 (Lancashire, Validus, Ariel Re, Flagstone, etc ) launching in those years to take advantage of a far harder pricing backdrop which in theory would have helped to moderate price increases by meeting demand.”
