Reinsurance rates are set to rise by the mid-2000s and will only add to inflation and climate change, which need to be added on top to cover premiums, Peel Hunt analysts have found. he encouraged.
The researchers noted that inflation has been “an important factor that could lead to a decrease in insurance in the home accident classes in the January 2023 renewal.”
With inflation running at its highest rate in years, recyclers are looking to factor that into their prices, analysts said.
After meeting with many insurance companies in Monte Carlo recently, Peek Hunt experts share what they have learned.
“Inflation is running at c.10%, with insurers focusing on inflation assessments that are ahead of inflation, and adding depreciation on top of their rates. Reinsurers are making their own inflation expectations based on the heavy use of insurance and own data.
“Reinsurers are also using the revised concept of inflation in their exposure to risk by: a) increasing the area above which the reinsurers are responsible for paying losses (for example, the combined area is increasing and the reserve of insurance risk is increasing) and b) changing the limit (exposure) ) which is being recycled (which goes into higher wages),” the researchers explained.
On top of this, the expected impact of climate change on benefits is another consideration placed on reinsurance rates, the researchers said.
Due to climate change and damage caused by secondary risks, Peel Hunt researchers believe that insurance rates are being raised again to ensure that these things are covered.
It sees “an additional average rate of one digit” being added, to allow insurers to “take into account severe weather-related losses.”
Because of this, experts consider further increases in catastrophe insurance rates for these new products to be “difficult to argue against.”
Making the experts say that insurers should prepare themselves to increase the number again in January 2022.
“If insurers want to transfer the same risk (limits) to next year’s policyholders, all things being equal they should accept the mid-teens as a starting point, just to cover inflation and climate risk,” he said. .
Which may not be the end of it, because reinsurers need to get returns to shareholders who meet the financial requirements.
Analysts at Peel Hunt said, “Furthermore, insurers may recoup more than this in order to increase their investment in value for money and ensure that the reinsurance sector will generate higher income over time.”
If insurers are reluctant to raise such rates, the experts believe they will have the choice of buying less reinsurance, or using captives.
Some may also look at the flea market, to see the price of the good that is being offered there. But, in general, the prices of the market of cats should be closely related to reinsurance this year, we believe, although some value gains can be found, depending on the money that enters the groups of cats, or the entry of a new cat. bond investors.
The researchers concluded, “We believe that there will be a select few who have more money to consider investing in a bearish market. For those who do, the return on investment risk should start to look good again.”
“But it should also be insurers who don’t want to underwrite home risk coverage at any price when it comes out of the market, lowering the amount available to the insurance industry.”