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Property reinsurers are resisting calls to lower prices or soften terms for cover against extreme weather, brokers say, signalling there will be no let-up in affordability pressures that have had ripple effects throughout the global economy.
Property catastrophe reinsurance, which insurers buy to share extreme weather-related losses claimed by homes and businesses they insure, has surged in price over the past 18 months, supporting a recovery in reinsurers’ underwriting profits and share prices.
Senior industry figures have called on reinsurers to cut prices and increase the amount of risk they are willing to absorb, to relieve pressure on insurers and their customers.
As annual reinsurance negotiations near their conclusion, senior brokers say that is not happening. One critical sticking point is the “retention”: the level of losses that insurers agree to fund before reinsurance kicks in. Reinsurers are not prepared to lower the existing retention level, according to brokers.
“We have not really seen a willingness on the part of the reinsurance community to step back down,” said David Priebe, president of reinsurance broker Guy Carpenter.
This made the market more challenging for primary insurers, he said, adding that by refusing to do more to share costs related to extreme weather-related losses, reinsurers were risking their “relevance” over the long term.
Brokers told the Financial Times that the negotiations for the January renewals were more orderly than last year’s talks, and that some reinsurers were again providing more cover.
Michael Van Slooten, head of business intelligence in global insurance brokerage Aon’s reinsurance division, said there was “clearly more appetite [from reinsurers] out there”, adding: “[But] it’s still difficult, this is not an easy marketplace to navigate.”
Rating agency Fitch said it expected reinsurance rates to continue to increase year on year in January, but at a slower place, less than 10 per cent on average, according to a note last month. Price increases would be most significant in loss-affected regions, it said. The cost of reinsurance in catastrophe-hit US areas rose by as much as double in the last annual renewals round.
There is still reluctance among reinsurers, according to brokers, to take on exposure to increasingly frequent “secondary” catastrophes such as severe thunderstorms, as opposed to the biggest threats such as hurricanes. These secondary events are the main factor behind forecasts that annual insured losses from natural catastrophes are expected to hit $100bn this year for the fourth consecutive year.
Reinsurers say that factors including climate change, inflation and property and wealth accumulation in storm-affected areas have forced them to push up their prices. Executives stress the need for premiums high enough to reflect increased risk and inflation.
“From our point of view it is a finely balanced renewal,” said David Flandro, head of industry analysis at insurance broker Howden’s reinsurance broking arm. But there was a “still a little bit of a supply-demand imbalance” for reinsurance, he added, as new entrants to the sector have been slower than after previous price corrections.
