A true reinsurance hard market may be around the corner, particularly in US property lines such as coastal wind exposed towers, with inflation a key driver and expected to result in a need for as much as $20 billion of new capacity to soak up demand at the renewals.
Already some of the biggest US carriers have indicated to the market that they could need upwards of a billion in new reinsurance limit, just to cover the inflationary effects and rising exposures in their portfolios.
Analysts at JMP Securities said that in Monaco at the Rendez-vous event in recent days, “Inflation and the potential for capacity shortfalls led the discussions, with the topic of pricing not at the top of the list, leading us to believe the upcoming January 1 renewal with be one of the more difficult buyers have faced in recent memory.”
Adding, “That said, we see the renewal getting done, albeit likely at the eleventh hour and at the expense of pricing, terms, and conditions that insurers may find difficult to swallow.”
A mismatch between supply and demand is a key issue for the reinsurance market as it approaches the important January 2023 renewal season.
“Inflation is pushing demand higher, while recent results have led several reinsurers to reduce supply, potentially creating classic hard market conditions in property-exposed lines,” the analysts said.
One of the main repeated threads we heard from our own discussions with reinsurers at the event was that, where an appetite for catastrophe risks persists, it will not do so at any price.
In fact, some reinsurers echoed our recent video interview with Swiss Re’s CEO, saying that reinsurance firming so far has barely covered inflation and that now they are looking for something on top and to cover the persistence of inflationary effects.
JMP’s analysts said reinsurers told them that “significant changes to pricing, as well as terms and conditions” would be required for many reinsurers to try and fill the developing cat capacity gap at the renewals.
While insurers are seeking taller towers to account for inflation, this promises to make the renewals quite challenging and potentially prolonged.
“All in, we could see something in the neighborhood of $15-$20 bln of additional capacity needing to be found (or retained) to bring supply and demand back into equilibrium,” the analysts said.
While insurers want to extend the tops of their reinsurance towers, to cover inflationary growth in exposures, reinsurers want to move away or hold less of the lower-layers, so JMP predicts more retention may be required by insurers as well.
“This increased demand at a time when reinsurers have been constraining supply can only push pricing one way – up. It certainly feels as if property reinsurers have the upper hand at the upcoming January 1 renewal, and likely will throughout the course of 2023, potentially longer,” the analysts said.
Read all our reinsurance renewals coverage here.
Up to $20bn in new capacity needed for Jan 2023 reinsurance renewals: JMP was published by: www.Artemis.bm
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