Catastrophe reinsurance prices are expected to rise through 2023, largely because of concerns about inflation and the continued economic downturn, market watchdog AM Best said.
There is a general perception in the reinsurance and insurance-linked insurance (ILS) markets that prices have been insufficient to cover the risks that have occurred for several years.
The factors, including the losses incurred, the increase in the economy due to secondary problems, the fear of climate change, the economic crisis, the epidemic and other problems, have all caused the desire to increase the prices, which led to the strength of the disaster recovery of the property in the recent recovery.
However, despite the recent increase in mid-year 2022 insurance renewals, AM Best questions, “Is it enough?”
“No one doubts the changes in insurance prices around the world from 2018,” AM Best explains.
The increase in insurance rates varies, depending on the line of business, the region affected, how the loss affected (or not) the cedent or the program.
But, in general, insurance rates are thought to have lagged behind primary insurance and reinsurance, meaning they need to catch up.
“The pace at which prices are continuing to increase in terms of inventory damage, however, appears to be increasing,” AM Best notes.
The investment management organization uses the Guy Carpenter US Property Catastrophe Rate-On-Line Index to measure acceleration, which is up about 15% this year so far.
“Such an increase has not been seen since 2006 and leads to the assumption that at the end of the year the renewal may show the “truths” that have finally turned the corner for reinsurers,” said AM Best.
But the Index is still operating at the high mortgage rates seen in 2009, AM Best notes, when the Florida market has grown significantly.
“The situation in Florida-where the problems stem from the low quality of the cedents’ loans, concerns about widespread fraud, abuse, and a difficult regulatory environment-cannot be sustained due to the increase in property damage risks,” AM Best explained.
Adding, “Similarly, the price movement in Florida is not a good indicator of what will happen in other areas with cats during the recovery period.”
But the agency believes, “cat prices are likely to continue to rise into next year.”
However, there are some big questions that describe the number of accidents that will affect insurance prices, which will affect inflation and the occurrence of major accidents in the industry.
“The combination of climate-related events, as well as economic growth and inflation, makes lenders reassess whether prices allow sufficient margins, and how cedents are pricing in the risks of inflation,” said the rating agency.
At the same time, although dedicated reinsurance funds have decreased slightly, the volume of international reinsurance and ILS markets remains high, so any increase in capital can also slightly pressure prices.
Lead AM Good to say. “Will the 2023 reform be the transition to a “true” drying market, able to attract new investment and increase availability?
“Will third-party funders move first, as they have done in the past, to take advantage of the removal of traditional players and drive a new soft approach?”
But in conclusion, “Trying to predict the future is very difficult these days, because the shape of the recovery at the end of the year will depend a lot on the current situation and the direction of the global economy.”