Analysts at WTW have observed a “significant flight to quality” in the reinsurance market as insurers use the hardening market to ‘housekeep’ their existing portfolios prior to focusing on new business.
The broker’s Insurance Marketplace Realities 2023 report predicts further rate firming for the property reinsurance market, with more withdrawals of capacity from catastrophe lines and many insurers having to take on more net positions than in previous years.
The report also predicts premium increases across the primary property market, driven by inflationary construction costs, heightened reinsurance pressures and possible catastrophe capacity constriction.
Within the reinsurance market, WTW estimates rate increases of 5% to 15% for property facultative business, depending on historical and recent loss activity, as there remains little to no new capacity but with generally stable condition as respects aggregate deployment.
Property cat (occurrence) increases are similarly pegged at 5% to 20% for loss free business and at 20% to 40% for loss impacted businesses, as capacity continues to exit the market and reinsurers remain unwilling to do deals at market terms and overall lack of capacity to fill programs ‘at any price.’
Analysts also expect increases of 10% to 20% for loss free property cat (aggregate) business, and 20% to 40% for loss impacted, and of 5% to 10% for loss free property risk reinsurance business, and 10% to 25% for loss impacted.
With rates continuing to harden across lines, then, and an increased submission flow into the market, WTW notes that underwriters are able to be more selective on deals and hence observes a flight to quality.
This flight to quality is also being seen in the MGA space, as re/insurers are trimming delegated authority exposure, particularly in the regional MGA space.
Also in the Insurance Marketplace Realities report, WTW highlights that worldwide dedicated reinsurance capital declined about $40 billion in the past year to $435 billion as modelled loss costs increased by some 20%.
It adds that the reinsurance market has created its own inflection point similar to what was seen around 2017, with higher treaty costs expected to be passed from insurers to their insureds as investors continue to push for profitability.
The anticipation across the industry is that this prolonged hardening of the market will continue for the next 12 to 18 months before levelling off.