Property cat reinsurance to see double-digit renewal increases: Fitch

Property catastrophe reinsurance rates are forecast to rise by more than 10% at the upcoming January 2022 renewal season, according to rating agency Fitch.

Fitch Ratings said that it “expects reinsurance rates to increase by more than 10% in catastrophe-related lines of business when contracts are renewed in January 2022, which supports the improving sector outlook for 2022.”

Around two-thirds of non-facultative reinsurance renews in January, with a strong focus on the European marketplace and after significant insured losses in the region in 2021, Fitch feels very confident on the direction of reinsurance rates in 2022.

“We expect double-digit percentage premium rate rises for property catastrophe cover in 2022 due to the insured losses of around USD100 billion in 2021 and the prospect of natural catastrophe claims increasing in frequency and severity,” Fitch Ratings explained.

Further saying that, because of the severe losses from flooding and storms in Europe, it expects that, “Price rises should be most pronounced in Central Europe.”

This is interesting, as early evidence from the catastrophe bond market and its pricing of European catastrophe risks suggests that, while there may be a slight uptick in rates across the continent, it may not be at double-digit levels.

Where double-digit increases are most likely to be seen in Europe will be the heavily loss affected programs, especially those focused on Germany, where the flooding was worst.

It remains to be seen whether more widespread 10% plus reinsurance rate increases are seen, but at this stage this perhaps seems a little hopeful.

Outside of property catastrophe reinsurance, Fitch is anticipating a more stable reinsurance renewal in January 2022.

“We expect 2022 to be the fifth successive year of price rises, although we expect growth to be slower than in 2021 as non-loss-affected lines of business are likely to show a broadly stable price development,” the rating agency said.

Adding that, “Attractive rates and healthy underwriting margins will continue to attract new capital, so that ample capacity will limit further price increases beyond 2022.”

However, the rate increases achieved over recent years are set to feed into better underwriting margins for reinsurers, which should also be positive for insurance-linked securities (ILS) fund returns.

At the same time, Fitch believes that higher reinsurance prices are helping to make the sector more resilient to “the negative effects of climate change on natural catastrophe claims patterns,” as well as to the issue of declining investment returns.

Importantly, Fitch believes that recent rate increases in property lines of business have been sufficient to compensate for higher inflation and inflationary trends and the rating agency believes inflation will begin to ease in 2022.

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