Reinsurance buyers are anticipating not just a continuation of hard market conditions in 2023, but additional “rapid” price increases are expected, according to Moody’s Investors Service.
A confluence of factors are driving the reinsurance market hardening, Moody’s believes.
“P&C reinsurance prices will continue to rise on climate change, inflation trends and strong demand,” the rating agency said this morning.
While the rating agencies survey of reinsurance buyers finds that “most expect prices to rise rapidly in 2023.”
Moody’s said that strong demand for reinsurance fuelled after years of losses and an increased perception of risk after the pandemic, are currently driving the need for primary commercial and reinsurance property and casualty (P&C) protection.
At the same time, the losses suffered, plus concerns over climate change have “prompted a sectorwide reassessment of catastrophe risk,” resulting in the widely reported capacity pull-back from some players.
“We expect continued price increases, and higher investment yields on the back of rising interest rates to improve earnings,” explained Helena Kingsley-Tomkins, Vice President at Moody’s.
Reinsurance sector earnings had been deteriorating for over ten years, while the last five years saw weak and volatile earnings, because of COVID-19 and catastrophe claims, the rating agency said.
Reinsurance buyers surveyed by Moody’s therefore expect increased prices at renewals in 2023.
40% of reinsurance buyers surveyed expect price rises of more than 7.5% in property lines.
Moody’s notes this is its third consecutive survey where respondents expected no overall price decline in P&C reinsurance.
Of course, the range of threats to reinsurance companies is broad right now, with inflation seen as key.
All of which suggests more rate hardening in property catastrophe lines of business, which should also help the catastrophe bond market to maintain recent pricing levels, of newly issued cat bonds once the market reopens for business after the hurricane season draws to a close.