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.
The 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.