Ratings firm Fitch has said the pressure on the further hardening of rates will only continue as the market reels from years of poor conditions exacerbated by the COVID crisis.
Re/insurance market dynamics including increased pricing, years of accumulating catastrophic losses, investment market losses and the significant losses expected from the fallout of the coronavirus pandemic have led to reinsurers’ push for further price increases, according to the firm.
“The environment has attracted increased capital as a result, with the potential for double-digit price increases to extend into 2021,” it added. “However, the upcoming hurricane season remains uncertain, as does the path and duration of the economic recovery.”
Reinsurance prices hardened for June renewals amid lower retro capacity, with all market sectors generally pricing more conservatively. Fitch added the strength of increased pricing brings reinsurance rates more in line with primary insurance markets, as reinsurers had seen pressure from large property losses, increased liability losses, higher retrocessional pricing and persistently low interest rates.
The pressure on the large global reinsurers and Lloyds is more intense as they are among the entities with the highest reported estimates of pandemic related losses to date, which reinforces further price hardening in reinsurance and specialty insurance lines.
“The underwriting response to the pandemic includes tighter terms and conditions, such as virus and communicable disease exclusions and sub-limits in more coverage area,” explained Fitch.
“June renewal activity is weighted toward property catastrophe coverage tied to the Florida market in advance of hurricane season,” added the report. “Reinsurance rates were up 20%-30% for most Florida renewals, with 50%+ increases for some higher risk accounts. In response to market conditions, influential market participants, Citizens Property Insurance Corporation, and the Florida Hurricane Catastrophe Fund, reduced the limits purchased for 2020.”
However, new capacity continues to enter the market looking to take advantage of more favourable underwriting opportunities. Traditional reinsurers have begun to raise capital in order to be in positions to capitalise from the higher rates.
However Fitch warns that such moves will have an impact.
“While favourable pricing trends are poised to continue in 2021, inevitably this large influx of underwriting capacity will halt this rate momentum,” it added.