1.1 renewals pricing & terms to boost reinsurer margins 4pps in 2023: Fitch

The global reinsurance industry likely leveraged hard property and specialty markets sufficiently at the 1.1 renewals to add some 4 percentage points to their underwriting margins after retrocession in 2023, analysts at the  Fitch Ratings agency have estimated.

The market at 1.1 renewals "reached a tipping point" in favour of the reinsurers on "unparalleled concurrence of seismic shifts in the macroeconomic environment, high geopolitical uncertainty, persistently high natural catastrophe claims and capacity limitations," analysts noted.

"We expect underwriting margins of our rated global reinsurance universe to improve by around 4pp in 2023 on the back of significant price increases, tighter terms and conditions, and the withdrawal of cover related to the war in Ukraine," analysts wrote.

Property lines affected by nat cats in 2021 or 2022 took 20-60% rate increases and Hurricane Ian even prompted some accounts to double in price, Fitch noted. Retrocession "moved up in lockstep."

Selected war-affected specialty lines including aerospace and political risks also suffered from limited available capacity and prices moved up 30%-60% for loss-free programmes and 50%-200% for the loss affected.

Claims inflation "should remain high," but gains in pricing and terms and conditions "should be sufficient to compensate" plus a buffer against unknowns.

Renewals in casualty proved "more orderly" and price gains of around 5% appear designed to "make sure prices remain adequate" in the event claims inflation spills over into casualty lines or if social inflation picks up notably.

Capacity could see some initial bright spots in 2023 after market-driven declines in reinsurer capital and ILS stagnation in 2022. Investor aversion to ILS "may change" in 2023 on rising expected returns, with catastrophe bonds likely to continue to take the preference over collateralised programmes, Fitch believes.

"Fitch expects that catastrophe bonds will see high inflows in 2023 and continue to gain market share in the alternative capital space," analysts wrote.

Fitch has last maintained a neutral sector outlook for the global reinsurance sector, balancing pricing gains against elevated macroeconomic and geopolitical risks.

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