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Property cat rates to increase 20% to 30% above inflation in 2023: Peel Hunt


Analysts at Peel Hunt are forecasting that property catastrophe reinsurance rates may increase 20% to 30% above inflation in 2023, based on conversations they’ve had with underwriters and brokers.

2023 reinsurance renewalsThis actually feels a little low to us, as sources speak to us about tentative renewal placement enquiries with 40% year-on-year risk adjusted rate increases being turned down by markets, with these not even being heavily loss affected accounts either.

How much reinsurance rates, for property catastrophe coverage, rise at the renewals in 2023, is becoming a bit of a moot point to argue, as at this stage there are still no firm order terms in the market for January and carriers are pushing for more in almost every case, we’re told.

Peel Hunt’s analysts say that they believe there is “further momentum ahead as the outlook for the reinsurance sector improves.”

Overall, the analysts say, that we’re moving into a market environment where it’s likely that “reinsurers will be much better paid to absorb the volatility that natural catastrophe exposures bring.”

A capacity crunch is on the cards, for the January 2023 reinsurance renewals, which combined with improved returns available in specialty insurance lines, means that the “risk adjusted sector returns should materially improve, in our view.”

On rate expectations, the analysts state, “There are suggestions from both brokers and underwriters that rate increases across property catastrophe lines could reach +20% – 30% above inflation next year spread across the European and US renewals; this includes changes to terms and conditions.”

Our sources suggest that risk-adjusted increases could actually prove to be higher, if traditional reinsurance and also insurance-linked securities (ILS) markets can secure the pricing they are currently negotiating for.

Importantly, the analysts point out that reinsurance rates in Europe may jump more this year than the last, as they have some ground to gain if they are to keep closer pace to where rates had already got to in the US.

“We expect US rates to accelerate and European rates to catch up during the 2023 renewal season,” Peel Hunt’s analyst team said.

Interestingly, the analysts believe that global specialty insurance markets have already, “reached rate adequacy following five years of broad based, high-single to low-double digit rate increases and the reinsurance sector is now likely to follow.”

Higher earnings from specialty insurance books can help re/insurers to absorb more volatility on the catastrophe side.

But the elevated catastrophe reinsurance rates could be the main driver of profit improvements in 2023, it seems.

With Peel Hunt’s analyst team saying that, “The adjustments that are being made to property catastrophe risk appetites, the terms and conditions of programs and higher rates should lead to a better risk reward in 2023 we believe.”

As said above, we believe rate increase ambitions are currently quite a bit higher, on a risk-adjusted basis, and early indications from market sources suggest the renewals will go down to the wire and likely prove to be quite late as well as challenging this time around.

So far, it’s almost a deadlock, with many offered programs getting pushed back for repricing and restructuring, resulting in significant uncertainty for cedents, as reinsurance and ILS markets continue to hold their ground.

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