Reinsurers premium rate improves but inflation risk mounts

Industry analysts have expressed concerns over the impact of rising inflation, litigation costs and deteriorating loss-cost trends on the global reinsurance industry.

According to Fitch Ratings, global reinsurer underwriting performance is poised to improve in 2022 as premium rate increases take hold, with further rate increases supported by persistent heightened catastrophe losses, continued low interest rates and mounting inflation concerns.

However, it noted that concerns remain regarding the impact of claims and social inflation trends, climate change risk and the strength of economic recovery on their future underwriting results.

In the first half of 2021, non-life reinsurance net premiums written grew by a substantial 18.5 percent as prices continued to rise and demand remained strong. Reinsurance renewal rates continued to increase in 2021, although pricing momentum slowed after two years of improving rates amid abundant capacity.

Thus far, renewals have largely not taken into consideration pandemic-related losses but this could change in 2022 with improved clarity around the ultimate losses, Fitch noted. Favorably for reinsurers, communicable disease exclusions remain widespread in property treaties.

The agency expects rate increases to likely to continue at the January 2022 renewals, albeit at somewhat reduced high single-digit/low double-digit levels, as rate adequacy is approached. European property rates in particular could be poised for an uptick in 2022 given recent increased catastrophe losses in the region.

Current pricing is still inadequate in the face of rising catastrophes, Fitch said. Global re/insured natural catastrophe losses were a manageable $40 billion in H1 2021, up from $35 billion in H1 2020 and above the $33 billion 10-year average (2011–2020) of 1H insured losses. However, July flooding in Europe could add $8 billion to H2 2021 catastrophe losses, with potential additional losses from the active Atlantic hurricane season.

Non-life reinsurers saw considerable YoY improvement in H1 2021 underwriting results, shifting to an underwriting gain as pandemic-driven losses subsided.

Fitch monitored 17 non-life reinsurers that posted an aggregate reinsurance calendar year combined ratio of 94.5 percent in H1 2021, down 11 pp from 105.9 percent in H1 2020, which included $6.1 billion of Covid-19 pandemic-related reinsurance losses (11.3 pp of earned premiums).

Fitch expects underlying combined ratio improvement to persist into 2022 as premiums earn through.

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