The insurance industry is headed for a “true hard market” where demand for property cover may not be fully satisfied because of reduced capacity, Manuel Arrive, a director in Fitch Ratings’ insurance group said at a Reinsurance Briefing in Monte Carlo on September 10.

“We are in a hardening cycle,” Arrive said. “We think there will be further price increases in 2023 despite the sustained rate increases we have seen since 2017.”

Fitch expects price rises to continue into 2023 to overcome the pressure on claims severity from high inflation and climate change-driven losses.

“High price discipline in a hardening market environment, rising reinvestment yields and strong demand for reinsurance protection are likely to support earnings,” analysts said in their latest report.

“These factors counter upward pressure on claims inflation due to a high inflation environment and climate change as well as falling asset values.”

Premium rates “accelerated” at the April renewals, Fitch said, with property lines seeing the most significant increases. But price changes in casualty lines of business were “more measured” as reinsurers allocated more capacity to this business.

“Casualty lines may face greater margin and reserving issues in the medium term as pricing momentum subsides, while loss severity from general and social inflation remains a concern,” Fitch analysts said in the report.

In property lines, margin pressure may emerge soon if rate increases do not keep up with repair and construction cost inflation, it noted.

Looking into 2023, Fitch broadly believes the reinsurers can maintain their underwriting profits on the level of 2021 over the next 12 to 18 months. It is maintaining a “neutral” outlook on the global reinsurance sector, reflecting a “broadly stable” underlying financial performance in 2022 and 2023.

“Demand for reinsurance covers is growing due to the uncertainty linked to high inflation, rising interest rates and financial market volatility as well as the war in Ukraine. While a slowdown in global GDP growth may negatively affect some business lines, such as motor, trade credit or construction, most lines are less susceptible to the level of economic activity,” it concluded.