Swiss Re says 2023 renewals brought no balance; hard market rolls on

Swiss Re can find no end in sight to the US property cat hard market as rising demand still easily outstrips the supply of capital which could easily remain sceptical about returns, the Big Four European reinsurance group has declared.

The market hardening at January 1 and April 1 has yet to do the trick: supply and demand balance has “yet to find its footing,” authors said in understatement.

“Our expectation is that limits will need to be topped up faster than new sources of risk capital accumulate, leading to a continuation of market conditions observed at January and April renewals for some time to come and until we're able to reset that demand and supply equilibrium.”

Demand for property catastrophe reinsurance in the US should grow 10-15% between 2023 and 2024 from a current level near $200 billion, authors claimed.

Inflation alone could do the trick as insured valuations are hiked to the actual path of inflation which Swiss Re says is “starting to moderate, but expected to remain elevated for some time to come.”

Personal lines carriers were the first to move and Swiss Re still expects “significant revaluation” from commercial carriers as well.

The supply side won't have any such automatic drivers: investors need proof in the returns. Five years of not earning the cost of capital makes an indelible impression.

“While the 2023 renewals have provided significant strides towards a new pricing equilibrium, investor trust in the reinsurance segment will be fully earned through delivery of sustainable economic returns,” Swiss Re officials wrote.

The relief will not come from the claims side, Swiss Re insists. The $100 billion global insured loss years are “likely here to stay, and will grow further fuelled by economic value growth, urbanisation, and climate change.”

Along the way, Swiss Re recommends cedents pony more than just additional rate.

“We’re going to need even better insights into the exposures our clients have,” authors wrote. Much more than the “established industry mechanisms,” Swiss Re wants “the same discipline around the monitoring, and sharing of exposure and model results” for secondary perils.

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