As demand for catastrophe reinsurance continues to outpace supply, further market hardening is expected, and against a backdrop of an uncertain inflationary environment, it will take time before the industry knows what the new normal is, according to Artur Klinger, Head of International Reinsurance, Everest.
With the reinsurance industry meeting in Baden-Baden this week ahead of the fast-approaching January 1st, 2024, renewals, we spoke with Everest’s Klinger about the focus of discussions during an interesting time for the market.
“I think there will be two main topics up for debate. The first is cat capacity. As we see it through discussions we’ve had during the year, the demand is increasing further. Clients are asking for additional capacity. And we feel that the demand is increasing further and also faster than supply, and that will lead to further hardening of the market,” said Klinger.
He explained that this will be different from market to market and from client to client.
“The big step has been done, let’s say, last year, but we think that in some areas we still need some adjustments on retention and some adjustments on price. It’s really a question of where good capacity is available, and that not a lot of more high quality capacity was entering the market,” he continued.
The other hot topic is inflation, and Klinger expects this to be the case going forward.
“We have seen losses coming through during the year but not only in property, also in motor and engineering, and the losses are increasing and increasing. So, we think we will have more discussions on inflation,” said Klinger.
In liability lines in particular, Klinger noted that Everest sees increasing awards in both Europe and the US, which will put some pressure on rates.
Overall, Klinger explained that the market is looking for stability and predictability, but added that while clients are better prepared, there are some challenges.
“A key challenge will be climate change-related perils like hail and flood, where you don’t have a real model. We have also seen that there are significant adjustments being made for earthquakes, especially following the recent Turkish earthquake. So, for renewals I think that there will be a lot of discussion around climate change-related perils on the property side.
“On the casualty side, again, it will be inflation, and how much will we see significant increases.
“I would say overall we are paying much higher losses than what we used to pay. But we don’t have enough data to say if this is the result of climate change or inflation, or population density,” said Klinger.
Expanding on this, Klinger said that after more than a decade of soft market conditions and low interest rates, the last two renewals were perhaps a wake-up call.
“But we are not yet at the new normal. It will probably take another one or two years until we know, as yes, we simply see losses more, but I think it will take some time until the market knows exactly what causes this effect. So, uncertainty will simply prevail,” said Klinger.