As per a new report from Fitch Ratings, reinsurance rate increases for property catastrophe business are likely to slow to below 10% on average when contracts are renewed in January 2024, though underlying profitability for the sector is still expected to improve throughout the year.
“Price increases, and better terms and conditions in 2023, and to a lesser degree in 2024, will continue to support underwriting margins,” the rating agency explained.
It continued, “Normalised for major losses, we expect margins to peak in 2024. Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields.”
Fitch therefore forecasts an improvement in underlying profitability for the global reinsurance sector in 2024, and is maintaining its improving fundamental sector outlook.
The rating agency also observed that insured natural catastrophe claims are likely to exceed $100 billion again in 2023, however, “global reinsurers have been far less affected than in 2022.”
“Negotiated attachment points for reinsurance cover are higher, and aggregate covers less available, meaning that reinsurers bear a lower share of medium-sized natural catastrophe claims, and cedents a higher share,” Fitch said.
The firm noted that it does not expect this to change much in 2024 as “reinsurers’ appetite for lower layers of property catastrophe risk remains limited.”
Elsewhere in the report, Fitch highlighted that reinsurance and retrocession capacity for higher layers of property catastrophe risk “should be sufficient to meet demand in 2024.”
The firm added, “Traditional reinsurers’ have greater appetite for these layers, and selective capital inflows from alternative capital providers will supplement the supply of cover. This should result in less upward pressure on prices than during the January 2023 renewals.”
The rating agency has updated its global reinsurance forecast and anticipates the calendar-year combined ratio to improve by 5.5pp in 2023, driven by reduced cover for catastrophe losses.
However, Fitch forecasts the combined ratio to increase by about 2pp in 2024 “as the return of more large natural catastrophe events would push the ratio up although underwriting margins excluding catastrophe losses should marginally improve.”
