Catastrophe reinsurance rate increases expected to moderate in January renewals
Reinsurance rate increases for property catastrophe business are likely to be less than 10% in the January 1 renewals, according to Fitch Ratings.
Fitch predicted that margins for property catastrophe are likely to peak in 2024. It projected that process increase will be higher in loss affected areas but modest elsewhere.
The ratings agency also said rate increases for specialty lines of business are expected to vary widely, depending on the respective loss experience in 2023. In casualty lines, price increases are likely to average in the low- to mid-single digits.
On catastrophe reinsurance, Fitch said “improvements in underwriting margins will therefore be less significant than in 2023”.
It added: ‘Price increases, and better terms and conditions in 2023, and to a lesser degree in 2024, will continue to support underwriting margins. Normalised for major losses, we expect margins to peak in 2024.”
Fitch said it anticipated investment income would continue to bolster earnings as reinvestment yields were still above average portfolio yields.
“Fitch therefore forecasts an improvement in underlying profitability for the global reinsurance sector in 2024, and is maintaining its improving fundamental sector outlook.”
Fitch noted that although insured natural catastrophe claims were likely to exceed $100 billion again in 2023, global reinsurers had been far less affected than in 2022 due to higher attachment points and a reduction in aggregate covers, ”meaning that reinsurers bear a lower share of medium-sized natural catastrophe claims, and cedents a higher share”.
It added: “We do not expect this to change much in 2024 as reinsurers’ appetite for lower layers of property catastrophe risk remains limited.
“Fitch believes reinsurance and retrocession capacity for higher layers of property catastrophe risk should be sufficient to meet demand in 2024. Traditional reinsurers’ have greater appetite for these layers, and selective capital inflows from alternative capital providers will supplement the supply of cover.
“This should result in less upward pressure on prices than during the January 2023 renewals.”
On specialty lines, Fitch said it expected price increases will be most pronounced in political risk, terrorism and political violence lines due to higher levels of unrest, coups and riots globally.
“In other specialty lines, we expect mid-single-digit price increases, on average,” Fitch said.
“In casualty lines, we expect price increase to average in the low- to mid-single digits. The push for higher prices in the US to counter social inflation could lead to mixed results in 2024. Reported claims have started to accelerate again recently.”
Fitch said it expected the calendar year combined ratio to improve by 5.5 percentage points in 2023, driven by reduced cover for catastrophe losses, but said it expects it to increase by two percentage points “as the return of more large natural catastrophe events would push the ratio up although underwriting margins excluding catastrophe losses should marginally improve”.