What’s driving reinsurer underwriting margins in 2023?

Underwriting margins for reinsurers will likely grow by an average four percentage points during 2023, said a new report from Fitch Ratings.

Key factors for the increases are significant price rises, tighter terms and conditions, as well as the withdrawal of cover related to the war in Ukraine, it added.

“Prices rose sharply in the January 2023 renewals in response to losses due to the war, high inflation and increasing natural catastrophe claims,” Fitch said.

The ratings agency noted sharp price hikes for property and specialty reinsurance cover.

“Most property reinsurance markets saw price increases of 20% to 60% following large natural catastrophe losses in 2021 and 2022,” Fitch said, “and losses from hurricane Ian in Florida contributed to the doubling of some prices in the U.S.”

The report does not break out data for Canada, but Fitch’s U.S. data showed prices for property coverage rose between 25% and 50% in the January renewals.

Other specialty lines — particularly political risk (up 25% to 35%) and aerospace (up 40% to 60%) — saw large price increases due to losses from the war in Ukraine.

Fitch said 2022 was probably the third-costliest year ever for insurers and reinsurers in terms of weather-related events. It pointed to hurricane Ian, as well as numerous secondary peril events in North America, Europe and Australia, as leading causes of total claims of about US$120 billion.

That made it harder for coverage seekers to place natural catastrophe risks with reinsurers during the January 2023 renewals, and Fitch said it expected some property catastrophe risks may become increasingly uninsurable.

“We estimate that the reinsurance sector’s aggregate accounting capital base declined by 15% in 2022, largely due to markdowns on fixed-income portfolios as interest rates rose,” it said. “This is likely to have reinforced reinsurers’ underwriting discipline despite higher interest rates having a neutral-to-positive impact on economic and regulatory capital.”

Fitch said it will maintain its neutral outlook for the reinsurance sector globally.

“This view balances stronger underwriting margins with risks linked to macroeconomic uncertainty, high claims inflation and increasing natural catastrophe claims caused by climate change,” their report said.

Feature image courtesy of iStock.com/Jewelsy