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Are rates in the reinsurance sector beginning to cool?

The economy and the world’s markets are moving back to some semblance of normality. Fitch Ratings director for EMEA insurance, Robert Mazzuoli, gives Intelligent Insurer his view.


The beginning of the year is always a good time to sit back and take stock. Fitch Ratings decided to do just that, looking at the reinsurance market around its January renewals.

The firm, which published its findings in a report “January 2022 Reinsurance Renewals Mixed on Price Changes”, found a mixed picture. To talk about its myriad discoveries, Robert Mazzuoli, director for EMEA insurance, spoke with Intelligentinsurer.com, the website and digital hub for news, interviews, analysis and debate, about what it had learned, and what the company could predict.

Mazzuoli said the report was one of its regular series and was compiled by speaking with reinsurers and brokers. On top of this, the company layered its assessment. There were, said Mazzuoli, some interesting developments at the beginning of the year, that were quite distinct from one another.

“When I look back at last year’s January renewals they were as close to a hard market as was possible. We had price increases across the board in every single line of business, along with a tightening of terms and conditions, exclusions of covers, etc. It was a very good time for the reinsurance side of the negotiations,” he recalled.

The latest renewals, he said, were not so unbalanced. “We still have some lines of business that suffered from a heavy loss burden last year, along with continued upward price pressure. But there were other lines of business where things turned more balanced and where the cedants could negotiate price discounts.

“It’s something that we might mark as the beginning of the end of the hard market phase.”

“Many reinsurers have returned because they thought the pricing level was adequate.”

Robert Mazzuoli, Fitch Ratings

Three areas stood out to Mazzuoli as those with the highest price pressure: natural catastrophes, particular in non-peak zones such as central Europe; cyber risk and ransomwares attacks that increased manyfold last year; and the retro market, where capacity fell and prices rose.

The lowest price pressure, however, was in two areas. “One is the US casualty market, where we saw price declines in single digits, or stable prices. We also saw, for quota share treaties, that reinsurers paid more for being on board than in the year before.

“The reason behind this is the good loss experience last year, aligned with the fact that prices increased in recent years. Many reinsurers have returned because they thought the pricing level was adequate,” he said.

Better profitability

The second pressure was trade credit insurance. “That saw an upward squeeze last year because of the coronavirus pandemic, followed by the lockdown measures when people thought bankruptcies would skyrocket. That didn’t happen, though, because the fiscal measures helped cushion the effect on the economy,” Mazzuoli said.

With that in mind, he says that Fitch Ratings foresees a strong improvement in the sector’s profitability. It is foresight that is based on a couple of elements.

“The first one was the COVID-19 pandemic and the claims it created for the sector, particularly on the P&C side. We expected a decline in new claims in 2021. The next was the hardening market, with better pricing that has started to feed through to earnings. We expect some benefit to come from that in 2022,” he explained.

“The longer we have those levels of inflation, the more it becomes difficult and dangerous for the sector.”

“The economic recovery and a strong appetite for reinsurance coverage give the opportunity to grow business because demand is growing. These are in place and are still a force. We expect, in principle—even though we didn’t have the Q4 results—that the reinsurance industry was close to earning its cost of capital last year and this year, too.”

Mazzuoli commented on capitalisation, saying that the reinsurance industry has managed to stay well capitalised throughout the pandemic.

“What we observed is that capital measures or increases happened across 2020 and into a relatively calm 2021. For 2022, we expect to see capital to be repatriated increasingly through share buybacks and share dividends. This is a sign that the capital strength is at excellent levels,” he said.

Fitch is watching two things as we go into the rest of 2022. The first is the state of the market. “Have we started to see the beginning of a new trend, a move into a slightly softening market? That would mean margins in the mid term may become squeezed,” Mazzuoli said.

“The second is around the pickup in economic inflation that we’ve seen in the second half of last year and now this year. We want to see how long it will last and what the knock-on effects will be.

“The longer we have those levels of inflation, the more it becomes difficult and dangerous for the sector,” he concluded.


To view the full interview visit: intelligentinsurer.com


Images, from top: Shutterstock / sun ok


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