The January 2021 reinsurance renewals have seen widespread price increases that often went beyond claims inflation, according to Fitch Ratings. It said the reinsurance market continued to harden, driven by pandemic-related claims, high natural catastrophe losses and pressure on liability lines of business. However, Fitch said the increases were capped by abundant capital in the market.
“Both traditional and alternative reinsurance capital were largely unchanged during 2020, despite heavy losses caused by the coronavirus pandemic and by natural catastrophes. Capital injections of over $20bn and a recovery in financial markets helped to maintain the reinsurance capacity at the levels of early 2020, proving the resilience of the market,” said Fitch.
The ratings agency said it believes that real price improvements will reach 2%-4% in 2021, leading to better technical results for reinsurers, assuming a normalised natural catastrophe claims level. Natural catastrophes caused approximately $76bn of insured losses last year, while manmade losses accounted for $7bn of claims in 2020. Total large losses were 25% above the long-term average.
Fitch Ratings said the sector outlook on the non-life London market is improving for 2021. “This reflects our expectations of continued improvements in pricing conditions, which would support the underlying underwriting performance of the market. However, despite the positive pricing dynamic, there are a number of challenges, including the uncertainty over the ultimate costs of coronavirus pandemic-related claims, the pandemic’s recessionary impact on the sector, and ultra-low investment yields.”
Fitch said rate increases accelerated further in the third quarter of 2020, with a number of insurers reporting double-digit rate increases across underwriting portfolios. “We believe the uncertainty over the pandemic-related claims costs, the ultra-low interest rate environment and improved underwriting discipline in the London market will support rate rises in 2021. Several London market insurers have also raised additional equity capital in H1 2020 to take advantage of the hardening market.”