Reinsurers can price to beat inflation and claims drivers in ‘hardening’ market: Fitch

Global reinsurers can price to match challenges to claims costs being delivered by high inflation across the rising slew of climate change-driven losses, analysts at the  Fitch rating agency have said in maintaining their 'neutral' outlook on the sector.

“High price discipline in a hardening market environment, rising reinvestment yields and strong demand for reinsurance protection are likely to support earnings,” analysts said in their latest report.

“These factors counter upward pressure on claims inflation due to a high inflation environment and climate change as well as falling asset values.”

Speaking to journalists at the presentation, Fitch's director of EMEA insurance Robert Mazuoli (pictured) tipped his hat to threats from inflation and nat cats, but put some early focus on support from demand.

“Lots of opportunities for the sector,” Mazuoli said. “If risk awareness is higher, then the demand for reinsurance is also high.”

To date, price improvements have covered the risks. “Price improvements are quite significant,” Mazuoli said. “Pricing dynamics is really on a level we have not seen in a really long time.”

Pricing momentum is positive to date in 2022 following the war-driven overlay of risk and inflation above and beyond the foundation of inflation already in play, he said.

To date, the action is in property where prices have had to respond to accelerating claims severity. Casualty pricing proved “more measured” as reinsurers piled into the sector with its reputation for lower volatility.

“Further price increases and higher limits in property lines are likely for 2023 to counter the upward pressure on claims severity from high inflation and climate change,” Fitch analysts said in their report. Casualty will move more slowly, with inflation concerns still only lurking on the horizon.

Looking into 2023, Fitch broadly believes the industry can maintain profit levels seen since 2021. Premium growth will slow to 8% in 2023 from 9% in 2022 “driven by continuing rate increases and opportunities,” senior director Brian Schneider added.

Cat combined ratios should come to 95.2% in 2022 and 93.6% in 2023 with cat losses holding inside a range near 9 to 10 percentage points of the ratio. “Good to see underwriting profitablity across the board,” Schneider said. Accident year underlying combined ratios should improve as reinsurers price to beat inflation.

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