Reinsurance Market Continued Hardening in January: Fitch Ratings

In its review of January reinsurance renewals, Fitch Ratings found that the reinsurance market continued hardening as pandemic-related claims, high natural catastrophe losses, and pressure on liability lines of business led to widespread price increases that often went beyond claims inflation.

Both traditional and alternative reinsurance capital were largely unchanged during 2020, Fitch said in its new report, "Hardening Market Conditions Continue at January 2021 Renewals," despite sizable losses related to the COVID-19 pandemic and natural catastrophes.

More than $20 billion in capital injections and a recovery in financial markets helped maintain reinsurance capacity at the early levels of 2020, the rating agency said, proving the resilience of the market.

Fitch said that it believes that price increases of 2 percent to 4 percent in 2021 will lead to better technical results for reinsurers, assuming a normal level of natural catastrophe claims.

The rating agency also said it expects the reinsurance sector's return on capital to improve significantly in 2021 compared to the low-single-digit return forecast for 2020 but to still remain slightly less than the industry's costs of capital.

Natural catastrophes were responsible for approximately $76 billion in insured losses in 2020, Fitch said, while man-made losses were responsible for an additional $7 billion in claims. Total large losses were 25 percent above the long-term average, the rating agency said.