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Reinsurance costs & capacity fuel negative 2023 outlook for P&C insurers: Moody’s


Moody’s has turned negative on the prospects of global property and casualty (P&C) insurers, with one of the main drivers being an expectation they will bear heavier catastrophe loss costs in 2023, as reinsurance becomes more expensive and less available.

moodys-logoThe rating agency has changed its outlook to negative for global P&C insurers today, citing rising claims inflation, claims frequencies returning to pre-pandemic levels, and the hardening reinsurance market.

Weaker economic growth and competitive pressures will also hinder P&C insurers prospects in 2023, Moody’s believes, hindering the ability to push through price increases to offset negative trends like inflation.

As a result, underwriting profitability is expected to weaken for global P&C insurers, Moody’s believes.

“We expect the sector’s underwriting profitability to weaken due to a combination of weaker economic growth and competitive pressures that will hinder insurers’ efforts to push through counterbalancing price increases,” explained Christian Badorff, a Vice President and analyst at Moody’s Investors Service.

The catastrophe claims burden will grow for these global P&C insurers in 2023, with primary insurers set to absorb more losses as reinsurers take a smaller share.

This is a function of higher pricing driving insurers to buy less cover, but also the reduced availability of reinsurance capacity also impacting the ability of companies to protect themselves as well.

After a number of years where reinsurance has been abundant and cheap, the global P&C insurers are about to be reminded what it means to be in a hard reinsurance market.

With reinsurers cutting back catastrophe capacity and the ILS market having less alternative reinsurance capital available again, alongside a general firming of prices, the prospects for 2023 and a truly hard reinsurance market make retention of more losses almost guaranteed for the majority of P&C primary carriers.

Changes in terms, such as higher attachment points, will also drive a greater retention of losses lower-down as well, all of which will eat into profits for primary insurers, Moody’s believes.

In addition, Moody’s things that primary P&C insurer pricing power will be reduced, largely due to economic conditions, making it harder to offset higher reinsurance costs and higher loss costs.

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