Reinsurance rates may increase into 2022, but momentum to wane: Fitch

Reinsurance rates and pricing are expected to increase again at the upcoming mid-year 2021 June and July renewals, likely increasing further into 2022 as well, but by next year these rises may be losing momentum, Fitch Ratings believes.

After three consecutive years of rate hardening at the January and April reinsurance renewals, Fitch says the mid-year 2021 renewal season will follow-suit.

One driver for this has been the lack of profits seen in reinsurance in 2020, as catastrophe and coronavirus losses together eroded performance across much of the industry.

However, for 2021, Fitch is forecasting a “slight underwriting profit” for the global reinsurance sector, with a key driver being the fact that, after the consecutive years of price firming, “reinsurance rate rises across almost all business lines outpace loss cost inflation.”

However, returns on equity (ROE) for 2021, in a normal catastrophe year and with no specific or unexpected pandemic related shocks, will only just reach the levels of reinsurer cost-of-capital, due to operations remaining stressed and investment returns low.

With price increases to continue at the June and July 2021 reinsurance renewals, Fitch Ratings also looks ahead to 2022.

The rating agency believes that reinsurance rates could continue to increase in 2022, but that the momentum seen will be starting to wane by then, absent any other major shocks to the reinsurance market.

Additional losses suffered in 2021, such as the US winter storms, Australian flooding and Suez Canal blockage, are all expected to keep the pressure up on reinsurers and ensure the focus remains on rates.

Fitch’s outlook for the global reinsurance sector remains stable, reflecting the price environment and the stabilisation of pandemic related claims and expects most companies will have their ratings affirmed over the next year or two.