Buyers expect price hikes to wane
Most reinsurance buyers expect reinsurance price increases to slow to the low single-digit percentage range in 2022 across all lines, compared with high single-digit or even double-digit increases in previous years.
That is according to Moody’s annual survey of global P&C reinsurance buyers, published on September 8.
The survey showed that buyers primarily attributed continued price increases to rising loss costs, and a realisation that prices were previously too low for the associated risks. The anticipated slowdown in price growth could reflect increased reinsurance capacity as underlying profitability improves, Moody’s suggested.
The report did note that large losses related to Hurricane Ida could potentially give greater uplift to reinsurance prices than respondents previously expected.
Respondents expect price increases to slow overall, anticipating strong increases only for nat cat-exposed property reinsurance, driven by recent above-average catastrophe claims.
The vast majority of respondents expect nat cat risks to increase over the next three years, citing shifting weather patterns and climate change as possible drivers. As a result, most insurers expecting at least a moderate increase in nat cat exposure intend to buy more reinsurance to mitigate the risk.
In terms of demand, most cedants do not anticipate purchasing more cyber reinsurance coverage in the coming year, but do expect higher prices and tighter terms and conditions.
In contrast, some respondents expect to purchase more property reinsurance to account for increased nat cat risk, while most intend to buy roughly the same amount overall.
Cedants foresee flat demand for casualty reinsurance, even though a significant majority of cedants expect loss cost trends to continue rising. COVID-19 affects contract structures and wording. Reinsurers have generally added pandemic exclusions to their contracts (eg, property, travel).
Most cedants reported at least some changes to their reinsurance programme structures and wording since the outbreak of the coronavirus pandemic. However, 85 percent of respondents said that the pandemic did not change their overall approach to buying reinsurance.
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Hurricane Ida highlights insurance gap
Hurricane Ida will likely become one of the costliest US mainland hurricanes on record both on a nominal and inflation-adjusted basis, according to Aon’s latest ”Global Catastrophe Recap” report, which evaluated the impact of natural disaster events worldwide during August 2021.
The report states that Hurricane Ida made landfall in the US as a 150mph (240kph) category 4 storm near Port Fourchon, Louisiana on August 29, killing at least 77 people. Ida caused extensive wind, storm surge and inland flood damage across the Southeast before its remnants later resulted in exceptional flash flood damage and convective storm impacts in the Mid-Atlantic and Northeast on September 1.
Total direct economic losses were expected to reach well into the tens of billions of dollars, and Ida will likely become one of the costliest US mainland hurricanes on record on both nominal and inflation-adjusted bases. While a sizeable portion of the economic damage due to coastal and inland flooding was not expected to be insured, public and private insurance entities were still likely to have exposures into the double-digit billions of dollars.
Steve Bowen, managing director and head of catastrophe insight on the Impact Forecasting team at Aon, said: “As larger-scale disasters occur with more intensity and subsequently result in greater impacts, this has put a spotlight on areas where gaps lie in humanitarian and insurance protection.
“This is true regardless of whether a country is identified as developed or emerging. Hurricane Ida’s catastrophic impacts in the US highlighted how much work is yet to be done to better insure around inland and coastal flooding.
“An even greater gap is found in Haiti following the major earthquake that once again has the country facing a challenging recovery. How governmental bodies work with private sector groups to improve hazard protection and aim to better and more smartly rebuild will be key to lowering future natural peril risk.”
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Hannover Re predicts higher prices
Hannover Re expects a continuing trend towards higher prices and improved conditions in property and casualty reinsurance for the various rounds of renewals in 2022, the reinsurer said in a statement timed to coincide with the virtual Monte Carlo Rendez-Vous.
Along with the sometimes far above-average large losses recorded in past years, the summer flooding seen in Europe—a natural disaster on a historic scale—and the considerable losses caused by Hurricane Ida have further increased the need for action on the part of reinsurers, it noted.
Pandemic-related costs and the low interest rate environment are an additional strain on the results generated by primary insurers and reinsurers. Inflation rates have also been rising of late in some regions. This has further heightened risk awareness among primary insurers and given an added boost to demand for high-quality reinsurance protection, it said.
“In property and casualty reinsurance there is a need for further rate increases. Only in this way will reinsurers be able to provide reliable risk protection in an increasingly challenging environment,” said Jean-Jacques Henchoz, chief executive officer of Hannover Re. “Particularly where natural catastrophe risks are concerned, adjustments are unavoidable. While the pace of price increases has slowed somewhat of late in the renewals during the year, this was primarily the case in areas where substantial increases had already been recorded in prior years.”
Hannover Re noted that in past rounds of renewals throughout 2021 it has already been able to secure improved conditions and higher prices; nevertheless, further adjustments are needed against the backdrop of the multi-layered challenges posed by large losses, pandemic expenditures and the low interest rate level, as well as the increasingly intense pressure on margins.
For the treaty renewals at January 1, 2022 in property and casualty reinsurance Hannover Re expects the positive pricing trend to continue, especially in loss-affected lines and regions. At the same time, conditions are likely to show further improvement on account of the considerable uncertainties, most notably in relation to future pandemics and cyber attacks.
Profitability in proportional reinsurance is satisfactory in light of sometimes marked price increases in the original market. In non-proportional reinsurance the available capacities continue to be adequate. Rates are holding steady or moving slightly higher worldwide.
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Reflecting on 9/11
In recent days the industry has been reflecting on the World Trade Center terrorist attacks of 9/11—it is now 20 years since that fateful day.
A number of companies have produced work examining how the world has changed in two decades. One of the better ones is a white paper published by risk modelling agency RMS, titled “The Lasting Impacts of 9/11 on the Insurance Industry”.
It is summarised in a blog by Shruti Deshmukh, RMS product manager of global terrorism and human casualty models: “Twenty Years Since 9/11: Living With an Ever-Present Threat”.
The white paper examines how the insurance industry responded after 9/11—through withdrawing coverage and the establishment of government risk pools, at a time when terror risk was largely unmodelled.
Deshmukh outlines how RMS pioneered new approaches to terrorism risk modelling, and how the principles established nearly 20 years ago stand firm today. Her blog looks at how the risk landscape has changed, and how terrorism has systemic risk potential, as seen during 9/11.
It concludes with a call to the industry to further its efforts to understand how the terror threat is ever-present, shifting and changing. The threat has become more complex as the COVID-19 pandemic and widespread emergence of cyber risk raise questions about how capabilities and motivations have shifted to leverage such new forms of attack.
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Lead image courtesy of shutterstock.com / Stockbym
