Swiss Re Insurance-Linked Fund Management

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Swiss Re forecasts rate hardening in re/insurance through 2022

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Global reinsurance giant Swiss Re has forecasted continued rate hardening for the insurance and reinsurance market right the way through 2022, with re/insurers reduced risk appetites due to numerous factors the main driver of rising prices.

“We expect re/insurance rate hardening to continue through next year,” Swiss Re explained.

Adding that, “The tightening of capacity is largely the result of lower risk appetite by re/insurers rather than a shortage of capital.

“Uncertainty from social inflation, natural catastrophe losses and pandemic-related losses have reduced risk appetite. Macro risks to re/insurers’ balance sheets are high, with rising inflation and interest rate risks.”

Rates across much of insurance and reinsurance have been hardening since 2018, the reinsurer notes, with the momentum having increased at the January 2021 renewals this year.

An “environment of ambiguity” is expected to persist and is responsible for driving much of the reduction in risk appetite among insurers and reinsurers, according to Swiss Re.

Here the company is referring to uncertainty over macro developments and volatile capital markets, both of which are now ever-present threats in the back of the industry’s mind, serving to heighten risk aversion.

“Elevated modelling uncertainty arises from multiple factors including social inflation, which has pushed up US liability claims; prior-year adverse reserves development, uncertainty around COVID-19 business interruption (BI) losses; successive years of above-average cat losses; continued uptick in secondary peril losses; and increased scrutiny of thee modelling of climate change impacts,” Swiss Re continued to explain.

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Property-insurance-related social inflation is another specific area of concern that has served to adjust risk appetites and therefore driven rate hardening.

The investment side of the traditional insurance and reinsurance business remains a significant contributor as well, with the industry now focused on generating underwriting returns, as their asset piles stop delivering such a benefit to their results.

In addition, the macro picture, especially regarding inflation concerns, also drives uncertainty over reserves and asset valuations.

Finally, the collateralised reinsurance and insurance-linked securities (ILS) market is another factor set to help drive prolonged hardening, Swiss Re believes.

“A reduction in capacity in collateralised reinsurance (CR), which has suffered poor returns in recent years, is contributing to selective tightening in the retrocession market and is also a factor in rate hardening in the reinsurance market,” Swiss Re said.

Summarising, the company closed by saying, “These market conditions indicate price rises are likely to continue both this year and next. Rate increases in 2022 would further increase the profitability of new business.”

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