Global reinsurance rates have improved since 2018, yet reinsurers have started to reconsider whether rates are indeed allowing for sufficient margins, and to what extent cedents are pricing inflationary risks at source, according to AM Best analysts.
The AM Best Global Reinsurance Market Report highlighted that this has been mainly driven by a combination of climate-related trends, and economic and social inflation.
As in any other previous cycle, analysts explained, the pace at which rates continue to rise varies widely depending on the class of business or territory, and whether a particular account has experienced recent losses or not. Generally, reinsurers—particularly, property cat writers—have been lagging primary carriers and retro providers.
However, according to the report, the pace at which pricing continues to harden for property catastrophe exposures seems to be accelerating.
Analysts noted that Guy Carpenter, a reinsurance company providing global risk and reinsurance solutions, has calculated a rise of 15% for its US Property Catastrophe Rate-On-Line (ROL) index between January and July 2022.
AM Best said: “Such an increase has not been seen since 2006 and is leading to speculation that the end of year renewals may witness a “true” hardening that eventually turns the corner for reinsurers.
“However, the index itself is just catching up with levels last seen in 2009.”
Additionally, the recent sharp increase has also been dominated by the Florida market mid-year renewals, which, according to analysts, is characterised by a certain amount of dislocation.
They said: “Conditions in Florida–where problems stem from the low credit quality of cedents, concerns about widespread fraud, litigiousness, and a challenging regulatory environment—cannot be wholly attributed to the increased volatility of property catastrophe perils.
“As such, Florida’s pricing movements are not necessarily a good indicator of what may happen in other cat-exposed territories during the next renewal cycle.”
The report noted that although pricing for property cat seems likely to continue rising into next year, improvements in casualty and specialty lines have slowed down. Margins remain attractive given the recent claims experience. The same can be said about cyber risks, for which interest is strong but typically accompanied by cautious growth and strict control of cover limits.
Yet, it highlighted one “big question” about the potential impact of inflation, which was a problem originally considered temporary – caused mainly by pandemic-related supply chain disruptions – but has now become more of a long-term concern.
This has led to steady increases in interest rates, with their consequential impact on the stock and credit markets, as well as on economic activity in general.
