Property Catastrophe Reinsurance Renewal Rates to Rise by More Than 10%: Fitch

Reinsurance rates are expected to increase by more than 10% in catastrophe-related lines of business when contracts are renewed in January 2022, which supports an improving sector outlook for 2022, according to Fitch Ratings.

Typically, two-thirds of non-facultative reinsurance business is renewed in January, with a regional focus on Europe. Rising prices, prospects of a strong economic recovery, and lower pandemic-related losses are key reasons for Fitch’s view that the sector outlook is improving for 2022.

Fitch also predicts there will be only a temporary rise in inflation.

“We expect double-digit percentage premium rate rises for property-catastrophe cover in 2022 due to the insured losses of around US$100 billion in 2021 and the prospect of natural catastrophe claims increasing in frequency and severity,” Fitch said in a market commentary.

Fitch expects price rises to be most pronounced in Central Europe, which was hit by severe floods in July 2021, causing around €10 billion of insured claims after several years of relatively low natural catastrophe activity.

Cyber, D&O Price Hikes

“We also expect lines including cyber risk and directors & officers (D&O) liability covers to report double-digit price increases,” Fitch said, noting that tighter terms and conditions and withdrawal of capacity add to the upward pressure on rates.

Fitch explained that cyber liability has been suffering from a strong rise in claims, mostly, but not exclusively, linked to ransomware attacks. At the same time, D&O has been confronted with a cyclical pick-up of social inflation as courts have reopened after stringent lockdown measures have expired.

In addition, the ratings agency expects risks to emerge from contested health and safety measures linked to the coronavirus pandemic as well as liability risks connected to environmental, social and governance aspects.

“We expect 2022 to be the fifth successive year of price rises, although we expect growth to be slower than in 2021 as non-loss-affected lines of business are likely to show a broadly stable price development,” Fitch affirmed. “Attractive rates and healthy underwriting margins will continue to attract new capital, so that ample capacity will limit further price increases beyond 2022.”

Although capacity is plentiful, Fitch said, rate increases in 2021 and 2022 will help bolster the sector’s underwriting profits “as these increases gradually feed into reinsurers’ underwriting margins.”

“Higher prices are making the sector more resilient to the negative effects of climate change on natural catastrophe claims patterns as well as to declining investment returns,” Fitch said.

Inflation Will Remain Manageable

Further, the risk of rising inflation will remain manageable for the industry in 2022, Fitch said, predicting that inflation will rise only temporarily in 2021 due to the pace of the economic recovery and shortages in key supply chains.

“We expect it will ease again in 2022 as supply responds. Recent price increases in property lines of business are sufficient to compensate for upwards pressure on claims inflation as repair costs for housing or vehicles rise, while long-tail casualty lines will only start to suffer in the event of a prolonged effect of multi-year inflation above expectations,” Fitch went on to say.

Source: Fitch Ratings

Topics Catastrophe Trends Liability Pricing Trends Reinsurance Property