Inflation, limited capacity and higher-than-ever demand will drive price increases through 2023, according to the Big Four reinsurers – Munich Re, Hannover Re, Swiss Re and Scor – at the Monte Carlo Rendez-vous de Septembre.
Munich Re projected that reinsurance capital next year would be lower than this year – the first instance of a capacity drop since 2018. AM Best and Guy Carpenter have estimated next year’s capital at $435bn.
As driving factors of capital depletion among reinsurers, Munich Re CEO Torsten Jeworrek cited the “very negative” performance in all asset classes so far in 2022 and macroeconomic uncertainties weighing on capital markets.
However, the uncertainty knocking investors’ confidence in the capital market is also creating higher demand for risk coverage across a wide range of business lines, building momentum for reinsurers to push for better prices.
During a press conference, Hannover Re chairman Jean-Jacques Henchoz said: “The trends are favourable from a reinsurer’s point of view.”
Due to this environment, there is “clearly increasing risk awareness across the industry”, which could lead to a “flight to quality”.
“And more often than not,” he added, “this means we have much more demand than ever before.”
Jean-Paul Conoscente, CEO of Scor Global P&C, said the company’s messaging to clients at the Rendez-Vous will be “bullish”.
“We see demand for reinsurance increasing, supply of reinsurance stabilising or decreasing depending on the line of business, and everyone realising reinsurers globally have not made an adequate return on their capital for the last five years,” he said.
Inflation
As this publication has reported, inflation was the dominant topic in the executives’ discussions with clients at the annual event, which reopened after a two-year hiatus due to Covid-19.
Henchoz noted that inflation rates in many regions were higher than they have been in decades, which he said is likely to impact the profitability of P&C lines.
Combined with the war in Ukraine and the ongoing pandemic, the macroeconomic environment is fuelling a long-term trend for higher loss burdens for (re)insurers, leading Henchoz to suggest further additional risk-adjusted improvements are needed in pricing or conditions.
Munich Re’s Jeworrek said inflation and rising interest rates could have a “huge” impact on the supply of reinsurance capacity, as well on the January renewals.
Nat cat exposure
After major loss events in 2017 and 2018, reinsurers have been reducing cat risk in their portfolios or pulling out of the business for good.
At the Rendez-vous, the Big Four’s nat cat appetite appeared to be split across the board. Munich Re and Hannover Re stuck to the more general bearish outlook on nat cat exposure, whereas Swiss Re and Scor expressed their commitment to cat reinsurance.
Scor CEO Laurent Rousseau emphasised the importance of cat risk in its offering to cedants, saying the company’s “significant” cat capacity is used to leverage the “broader relationship”.
Swiss Re, meanwhile, said it would continue to expand and diversify its nat cat portfolio.
Swiss Re Reinsurance CEO Moses Ojeisekhoba said the company would maintain its appetite in the US market as well – apart from Florida, where it has been relatively “underweight” and will continue to be so.
He added: “Whether it’s secondary perils, primary perils, the concept of risk itself is greater, and, because of that, we forecast and expect that, over the next three years, premium on nat cat will continue to grow.”
While the general tone on climate change was sombre, some suggested it could create new insurance demand as businesses make the transition to renewables sources.
Ojeisekhoba pointed out that achieving net-zero by 2050 in the western world would require a significant amount of investment, which (re)insurers could help cover to accelerate innovation.
Munich Re, for example, offers coverage for hydrogen production plants – a product reliability and technical performance product that acts as a guarantee for investors for which product performance or reliability risk are not part of their appetite.
