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Strong demand for reinsurance amid high inflation: Goldman Sachs

13th September 2022 - Author: Kane Wells

With the 2022 annual briefings having started in Monte Carlo, analysts at Goldman Sachs have highlighted a strong demand for reinsurance amid higher inflation, while capital supply is flat to down. It expects strong rate increases will continue in the January 2023 renewals, with companies taking a more cautious view.

claims-social-inflationGoldman Sachs notes that the reinsurance market will see further rate hardening in 2023, to reflect increasing risks given the uncertain economic and geopolitical environment and increasing demand for insurance protection.

The analysts believe that despite the challenging market backdrop, European reinsurers under their coverage, including Munich Re, Hannover Re and Swiss Re, have all indicated that they will take opportunities and continue to grow in the nat cat market, supported by their strong balance sheets and risk capacity.

It added, “Our Buy-rated stocks Munich Re and Hannover Re, are well positioned to grow in the hardening nat cat market and have the capital and capacity to take advantage of the hard market in property cat.”

The increasing worries on climate change protection have supported continued price increases and the demand for nat cat covers, says Goldman Sachs.

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It observes that climate change protection is a material tailwind for the sector over the medium to long term, as reinsurance companies are the lenders/insurers of the last resort against weather losses.

As the risk increases, it expects both the demand for the reinsurers’ balance sheets and the price will increase.

Munich Re estimated that the global P&C reinsurance market will grow in real terms by 2-3% worldwide from 2022-24, adjusting for inflation, with the strongest growth likely to be in Latin America, at 4-5%.

While the Swiss Re Institute also forecasts that the nat cat market will grow to $48bn over the next four years from $35bn.

Goldman Sachs includes that the investment in green-energy transitions to address climate change will also give rise to demand for insurance protection as investment in new assets increase and supply chains are re-organised.

“Our Carbonomics team anticipates a cumulative $56tn investment in infrastructure through 2050 to meet the 1.5° Global Net Zero transition, which we believe will raise demand for insurance protection,” it said.

The Swiss Re Institute anticipates that, based on announced targets, the global investment in renewable energy will generate $237bn in cumulative premiums from 2022 to 2035, partially offset by a reduction in fossil fuel-led premiums.

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