P&C reinsurance buyers expect to pay at least 5% more at 2021 renewals

According to a survey of property and casualty reinsurance buyers undertaken by rating agency Moody’s Investors Service, the consensus is that pricing will rise by at least 5% at the 2021 renewals, making their coverage more expensive.

“P&C reinsurance buyers expect reinsurance prices to rise by at least 5 percent next year as the fallout from the coronavirus, more volatile natural catastrophe losses and capacity constraints take a toll on reinsurers profitability,” Moody’s explained.

That 5% is a baseline as well, taking into account the current situation in the insurance and reinsurance market.

Should losses escalate, or conditions deteriorate due to the Covid-19 pandemic, price rises would be expected to be even higher at the 2021 reinsurance renewals, it seems.

“Some respondents commented that price increases could move even higher next year if financial market conditions deteriorated in the second half of 2020, or if this year’s US hurricane and wildfire seasons result in higher than expected losses,” Brandan Holmes, Vice President and Senior Credit Officer at Moody’s explained.

An impressive 90% of survey respondents said some level of price increases are to be expected in 2021 across all lines of reinsurance business.

No respondents at all said that they expect reinsurance pricing to decrease.

For comparison, under 50% of respondents to the same survey a year ago expected price rises, while some had expected prices would fall at 2020’s reinsurance renewals.

Positively for the insurance-linked securities (ILS) market, given its focus on natural catastrophe and severe weather risks, price increases are expected to be strongest for catastrophe-exposed property reinsurance, Moody’s said, reflecting rising capacity constraints in the marketplace.

More than 80% of P&C reinsurance buyers are expecting prices to rise by more than 5% across most lines, compared with just 16% a year ago. As ever, loss affected lines and programs are expected to face the highest level of price increase.

Demand is less clear though, as some buyers still expect to purchase more reinsurance in 2021, but any increase is expected to be smaller than in the last two years.

Higher prices will dampen demand for reinsurance to a degree, Moody’s expects, but still demand should be ample to use up capital at the moment it seems, with end of year capital raising perhaps the biggest wildcard in exactly how hard the reinsurance market gets in 2021.