Wednesday, October 27,2021 / 04:39 PM / by Fitch Ratings / Header Image Credit: Insurance Journal

Reinsurers' plans to continue raising premium ratesshould contribute to stronger profitability and an improving sector outlook,Fitch Ratings says. Several reinsurers said at September's Monte CarloRendez-Vous and this month's Baden-Baden Reinsurance Meeting that they expectedfurther price rises when contracts are renewed in January. This is largely dueto increasing natural catastrophe claims linked to climate change. We recentlycited rising prices as a key reason for our view that the sector outlook wasimproving for 2022. Prospects of a strong economic recovery and lowerpandemic-related losses were also key.

Natural catastrophe claims have become more frequentand severe in recent years due to climate change. We expect 2021 to become oneof the five most costly years this century for global reinsurers. Severe floodsin central Europe in July and Hurricane Ida in the US in late August and earlySeptember will, together, have caused insured losses of more than USD40billion. Globally, there were about USD40 billion insured losses in 1H21. Theglobal total for 2021 will also reflect several smaller catastrophe events in2H21, including a series of wildfires, and will exceed the amount thatreinsurers had budgeted for.

We expect double-digit percentage premium rate risesfor property catastrophe cover in 2022 due to the excess losses in 2021 and theprospect of higher natural catastrophe claims frequency and severity in future.This would make 2022 the fifth successive year of price rises. The priceincreases should help to bolster the sector's underwriting profitability asthey gradually feed into reinsurers' underwriting margins.

Higher prices are making the sector more resilient tothe effects of climate change on natural catastrophe claims patterns.Reinsurers have shown discipline in prioritising pricing for increased riskrather than seeking to undercut competitors to gain market share. The growth ofcatastrophe bonds to pass risk directly to investors could also become animportant factor to mitigate the sector's exposure to climate change risk inthe coming years.

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