Global reinsurers can grab 2022 revenue growth on main line pricing, but renewal talks look ‘difficult’

Global reinsurers may enjoy single-digit revenue gains into 2022 as pricing in key existing lines, including some “difficult” pending renewal price negotiations, helps firm up technical results, S&P key insurance sector officials told a briefing.

“All in all, the forecast is for low single-digit or single-digit growth on the top line,” S&P’s lead analyst for reinsurance and Africa Ali Karakuyu said.

Price hikes trump volumes or new high-growth sectors. “In general, it is more of the existing lines seeing a pricing increase that will contribute to the top line,” he said.

That puts the focus on January renewals.

“There will be some tough discussions between reinsurers and the primary carriers as the reinsurers need to make good [on] the losses for Covid-19 and an expensive retrocession market,” Karakuyu said. “Particularly those areas impacted by cat losses or covid losses, there will be some tough discussions.”

Nat cat exposure may be the biggest wildcard in that mix, where signs say the industry still struggles with unmodeled risks and putting climate change into their business decisions, S&P noted.

“[S]cenario analysis suggests that reinsurer’s estimates of their exposure to natural catastrophe risk – and therefore physical climate risk – could be underestimated by 35 to 50 percent,” analysts wrote in a presentation following an industry survey. That forecast is not the S&P base case grasp.

Forecast combined ratios for reinsurers should slip to a range of 98 – 101 percent in 2021 before edging down to a 97 to 100 percent range for 2022, S&P forecasts indicate. Nat cat should add 8 to 10 bps to combined ratios through end 2022.

“It has been diminishing and we expect it to be similar to 2020, 1 to 2 pps [decline] should be favorable,” Karakuyu said.

Claims inflation may be playing its role in driving price increases, but may be less of a wildcard than recent hype would otherwise indicate, analysts say.

The recent and pending balance on reserve provisioning shows “that while high on the agenda of groups, there is no particular concern that inflation has not been priced well,” Karakuyu said.

Comments echoed sentiments in a just-published report from S&P on the global reinsurance outlook in which analysts warn the global reinsurers will again fail to earn their cost of capital in 2022 and could “struggle” to do so in 2022 as well.