Property Catastrophe Reinsurance Premium Increases Expected To Slow

Premium increases for property catastrophe reinsurance are likely to slow to below 10 percent on average at January 2024 renewals, according to Fitch Ratings.

As a result, improvements in reinsurers' underwriting margins will be less significant than in 2023, the rating agency said.

But price increases along with more favorable terms and conditions for property catastrophe reinsurers in 2023, and to a lesser degree in 2024, will continue to support underwriting margins, Fitch said, indicating that it expects reinsurers' underwriting margins to peak in 2024 when normalized for major losses.

"Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields. Fitch therefore forecasts an improvement in underlying profitability for the global reinsurance sector in 2024, and is maintaining its improving fundamental sector outlook," a November 23, 2023, Fitch statement said.

While insured natural catastrophe claims are expected to top $100 billion once again in 2023, global reinsurers have been far less affected than they were in 2022, Fitch said.

Negotiated attachment points for reinsurance coverage are higher and aggregate covers less available, resulting in reinsurers bearing a lower share of medium-sized natural catastrophe claims and ceding insurers a higher share, the rating agency said. "We do not expect this to change much in 2024 as reinsurers' appetite for lower layers of property catastrophe risk remains limited," Fitch said.

Fitch said it expects price increases for property catastrophe coverage to be higher in loss-affected regions but moderate elsewhere.

Reinsurance and retrocession capacity for higher layers of property catastrophe risk should be sufficient to meet demand in 2024, Fitch said. "Traditional reinsurers have greater appetite for these layers, and selective capital inflows from alternative capital providers will supplement the supply of cover," the rating agency said. "This should result in less upward pressure on prices than during the January 2023 renewals."