In general, reinsurers are achieving north of 35% rate increases for January 1st 2023 property and catastrophe reinsurance renewals, according to Stonybrook Capital, with the company expecting hard market conditions to persist through the new year.
In an end of year update on the P&C insurance and reinsurance markets, Stonybrook Capital, a specialist strategic advisory and investment banking firm focused exclusively on the insurance and reinsurance industry, explained that in some cases they have heard that reinsurers have been able to command rate increases of up to 150%.
The renewals have put catastrophe reinsurers in the driving seat, Stonybrook Capital says, with improving terms, higher retentions, and much higher pricing all being achieved.
Many providers of reinsurance capital are completely declining layers below the 1-in-10 year attachment level, leading to a need to retain more risk through meaningful retention increases for cedents, they explain.
The “harsh” renewal conditions for primary insurers are being driven by “an even more restricted retro market,” Stonybrook explained.
While the “surprising absence of new entrants” is cited as another factor that has driven reinsurance renewal market dislocation and challenges.
Summarising the state of the P&C markets at year-end 2022, Stonybrook wrote, “There may be no better way to summarize 2022 for the (re)insurance industry than looking at the current state of property reinsurance renewals. The sharply increasing prices of year-end renewals is the cumulative result of losses caused by extreme weather events, economic/social inflation, and geo-political uncertainty.
“These stresses have led the US P&C industry to post its highest quarterly combined ratio (106.6%) in five years and drop the industry’s total surplus by 11%. The P&C industry experienced a $24.3B net underwriting loss in the first nine months of 2022, partially driven by the estimated $115B of global insured natural catastrophe losses in the period. Many in the industry report this as the hardest market since at least Hurricane Andrew and the Northridge earthquake of 1992 and 1994.
“While property catastrophe treaties will experience the sharpest rate increases, casualty insurers have also been struggling with adverse development, slowing rate increases, and heighted costs driven by inflation and supply chain issues. In bull markets, carriers can offset some of these losses with investment gains. To date, all major indices have slid on the year, hurting insurers equity portfolios. Fixed income portfolios are also down on a mark- to-market basis.”
Stonybrook Capital has some solid advice for P&C insurance and reinsurance players as to how they should approach 2023 and the new year ahead.
“To recover from a poor underwriting year in 2022, the insurance industry should count on widespread rate increases, higher fixed-income yields, and renewed attention to business fundamentals in risk selection, production design, and claims,” the company advises.
There are challenges ahead though, as many of the issues that have defined 2022 for the P&C marketplace are set to persist into 2023, Stonybrook cautions.
Inflation and elevated catastrophe costs will remain a threat, affecting the primary and reinsurance market and remaining drivers for rate.
Reinsurance capital is expected to remain in a state of shortfall as a result, Stonybrook believes.
Leading the company to forecast that, “We expect reinsurers to remain in the driver seat and for that hard market continuing well into 2023.”