Reinsurance market made significant strides to improve profitability at the recent January 1 renewals, particularly in underperforming property natural catastrophe business.
According to Berenberg, reinsurers in property lines sought to significantly increase how much they charge for their capital at 1/1, which resulted in tense and extremely late running negotiations.
Inflationary pressures and rising interest rates, and high nat-cat losses, are key drivers of this hard market, and thus, should these drivers persist, they will also continue to put pressure on rates.
Ultimately, we believe higher reinsurance prices will trickle down to the primary market, which means the primary buyer and consumer will bear the ultimate cost, posing a risk for the overall market.
A parts of the property market environment are undoubtedly the best seen in decades, as risk-adjusted rates were able to reach new highs across property nat cat in the US.
Catastrophe loss-hit treaties in the US witnessed rate increases of more than 100% as Hurricane Ian, other catastrophe and risk losses, inflation, and rising interest rates drove disruption in the market.
With such favourable pricing levels, analysts believe it’s likely that more capital will be raised and deployed throughout 2023, with signs that some $3.3 billion may have already moved freely into the sector in December as the repricing became apparent.