Reinsurance costs are expected to keep rising for Australian property and casualty insurers, as natural catastrophe industry loss costs in the country have escalated significantly in recent years, according to S&P Global Ratings, while we’re also hearing capacity has been tighter at the renewals than anticipated.
S&P explained that Australian P&C insurers have already been facing headwinds that are partly related to higher reinsurance costs, as well as natural catastrophe losses, claims inflation and investment loses due to higher interest rates.
But natural catastrophe event frequency has actually declined, according to the rating agency and reinsurance capacity remains “solid” for the industry.
However, while the frequency of catastrophes has declined of late, S&P notes that “the intensity and damage bill has near doubled from a decade ago.”
Analysing catastrophe loss data, S&P Global Ratings found that between December 31st 2012 to March 31st 2022 Australia experienced around 40 declared catastrophes, that drove original losses of about A$24 billion to its P&C insurance industry.
The previous 10 years saw a reported 50 catastrophes occur, but the original insurance industry losses from these were much lower, at almost half and coming in at under A$13 billion (inflation adjusted).
Australia’s most recent major catastrophe loss event was the flooding that struck South East Queensland and New South Wales earlier this year.
S&P notes that this event caused “extreme and unprecedented losses”, but that for P&C insurers the floods impacts were tempered thanks to solid earnings from other lines of business.
However, the upshot is an expectation of more rate hardening in reinsurance, especially for property lines.
“We expect primary P/C insurers to experience continued upward pressure on reinsurance prices for property lines in particular, and across aggregate excess of loss protection covers,” S&P Global Ratings forecast.
The rating agency added that this upward pressure could last, saying, “Local insurers have been particularly effective in managing large claims and exposure to natural peril and catastrophe events through reinsurance, and we expect heightened pressure on reinsurance rates and cover over the next three years.”
At this mid-year renewals, we’re told capacity has become an issue for some property catastrophe reinsurance renewals in Australia, with a number of reinsurers and ILS funds pulling-back on deploying capacity into the country.
This has helped to exacerbate the rate situation, with hardening now seen to be more evident than had originally been anticipated at Australian reinsurance renewals in 2022.