According to a Moody’s Investors Service report, reinsurance earnings will be strengthened by increasing prices and higher investment income amid rising interest rates.
Catastrophe losses and a heightened perception of risk following the pandemic have fuelled an increase in demand for both primary commercial and reinsurance property and casualty (P&C) protection, says Moody’s.
Simultaneously, the report notes that these losses, alongside climate change concerns, have been a catalyst for a sector-wide reassessment of catastrophe risk, with many reinsurers beginning to pull back capacity.
Helena Kingsley-Tomkins, a Vice President at Moody’s, said, “We expect continued price increases, and higher investment yields on the back of rising interest rates to improve earnings.”
Most reinsurance buyers surveyed by Moody’s foresee an increase in prices, with 40% expecting price rises of more than 7.5% in property lines. This marks the third consecutive survey where respondents expected no overall price decline in P&C reinsurance.
Moody’s notes that inflation remains a key threat, with rising material and labour costs, exacerbated by the impact of post-pandemic supply chain disruption, already holding back earnings improvements in home, commercial property, and motor (re)insurance lines.
Sustained high inflation could also increase long-term care and medical costs, elevating claims, and reserving risk in long-tail liability lines, suggests the report.