There is a need for further rate adequacy at the upcoming 1 January renewals following a series of major natural catastrophe losses so far in 2021 and a high frequency and severity of claims in certain casualty classes of business.
This is according to Torsten Jeworrek, member of the board of management and CEO of reinsurance at Munich Re.
“In view of the high natural catastrophe losses across the globe, the low interest-rate environment and upcoming inflation concerns, traditional reinsurers as well as alternative capital providers remained disciplined,” he told Artemis around this year’s virtual Rendez-Vous renewal discussions.
“At the upcoming renewals, rates in various classes of business are expected to continue their upward trajectory.”
Major loss events, including the Texas freeze, European flood losses, and, more recently, the North American hurricane season, will support the continued correction in rates on the property side of the business.
“The frequency and severity of natural catastrophes continue to increase in 2021, exposing the protection gap on the primary insurance side and underlining the need for reinsurance,” he explained.
For the European market, the July floods should trigger “deeper discussions about the rate adequacy for European cat reinsurance treaties at the new renewal”, thought Jeworrek.
The floods, which devastated large parts of Germany’s Rhineland-Palatinate and North Rhine-Westphalia, are expected to produce insurance losses of up to €6.5 billion, according to RMS.
“It is also important that the floods raise awareness of the risk, as well as the current large insurance gap,” he said. “As things stand, fewer than half of the buildings in Germany and in the affected region are insured against such perils.”
“As such, we can expect an increase in the demand for coverage, followed by growth in the demand for reinsurance.”
“It is important to understand that, due to climate change, larger flood events will most likely occur more frequently in future. We therefore need to make society more resilient in that respect and also make certain that people are insured against such risks.”
The retro market remains challenging. Jeworrek noted it was strained even before the COVID-19 pandemic due to nat cat losses between 2017 and 2019.
“For the time being, we expect slightly reduced or stable retro capacity at the 1 January 2022 renewal, but that, of course, depends on the developments between now and year end,” he added.
“This applies to traditional capacity providers and the collateralised segment, and we expect markets to concentrate their commitments and cooperate with fewer but high-quality key partners.”
Casualty continues to feel claims burden
Meanwhile, the US casualty market continues to stabilise, explained Jeworrek.
“Increased losses in cyber, especially from ransomware, have deeply impacted the global cyber primary and reinsurance markets, leading to clear rate hardening and capacity limitations,” he said.
“The ongoing COVID-19 pandemic continues to challenge the insurance industry, and clarification of the loss burden both on primary insurance and reinsurance companies may have an impact at the next renewal.”
The impact of social inflation continues to be felt on the US casualty market and this will also influence pricing, he thought.