Prices for reinsurance are expected to rise further in 2022, this report from Moody’s Investors Service analysts is a confirmation of market conditions and forces the just completed January renewals.
Reinsurers are aiming to boost their profitability, while covering loss expense and inflationary factors. The report also confirms the price increase expected for fire risks in the local Nigeria market. The Professional Reinsurance Association of Nigeria demanded price increase was expected to apply at the January renewal but was pushed back to June 2022 after brokers and insurers asked for time to brief their clients.
The rate increases achieved at the January 2022 renewal season have put the reinsurers on a better footing, Moody’s notes, with favorable outcomes across many lines of reinsurance business.
The reinsurance sector needs to “improve profitability and risk-adjusted returns” Moody’s said, with recent price increases partly prompted by “an industrywide reassessment of catastrophe exposure, including secondary perils.”
But other factors that have driven a need for more rate and also risk aversion, include inflation, social inflation and rising litigation costs, as well as a “dramatically changing cyber market.”
Importantly, Moody’s analysis found that most reinsurance price rises have been above loss cost trends, which is critical as the industry plays catch-up to primary and retrocession.
Rising retro rates is one area that is expected to help keep the pressure on reinsurance pricing, as reinsurers need to either increase their pricing or reduce their exposures in response.
In addition, the insurance-linked securities (ILS) market having less available capital again, due to the much-discussed trapping of capital, losses and redemptions that have been experienced of late, mean further pressure on reinsurers ability to source retro protection this year.
In particular, retro availability and rising risk perception, are driving property catastrophe reinsurance pricing higher, which Moody’s expects will persist, although perhaps not at levels achieved in January.
Another factor there is reinsurers evolving risk appetites, with some reducing their catastrophe exposure and deploying less capital to property cat risks, while looking for more diversifying opportunities.
While this can pressure primary insurers, they have been securing higher rates for a time and reinsurance rates may drive that trend to continue as well.
Moody’s notes that, “Although the pricing trend is positive for reinsurers, property catastrophe prices still remain below 2012 levels and will need to increase further to provide adequate risk-adjusted returns, particularly as risks for the sector have risen.”
In addition, Moody’s feels that buyers of protection are anticipating more increases, saying that after a recent survey it undertook, “The trend has clearly shifted to buyers’ acknowledgment and expectation of price increases in 2022.”
All of this leads Moody’s to provide another voice calling for reinsurance firming to continue through 2022.
“We expect broad-based price increases in April and July, the key renewal dates for Japanese and US reinsurance contracts, respectively,” the company explained.
But cautioning that, “The extent of price increases will be dependent on the balance between the supply of capacity and the demand for reinsurance coverage.”
