Property reinsurance lines have experienced more significant price rises than casualty lines so far in 2022 and are likely to continue to do so in 2023, according to some rating agencies. 

Key renewal dates for the reinsurance industry are usually 1 January, 1 April and 1 July. Fitch Ratings said premium rate increases generally accelerated in 2022 after a temporary slowdown during the January renewals, but noted property lines experienced the highest increases in response to accelerating claims severity driven by inflation. Higher frequency of non-peak natural catastrophes and the war in Ukraine were also factors driving up prices in this line.  

Meanwhile, price changes in casualty lines were not as significant as they were in property as reinsurers have allocated more capacity to this business, according to Brian Schneider, senior director for insurance at Fitch Ratings. 

“We've seen more reinsurance capital in this space [casualty], so there is more supply than there is in property,” he said during a media briefing on 8 September.

Schneider said further price rises for property lines are likely for 2023 as a result of high inflation and climate change, while rates for casualty lines are likely to remain stable as more reinsurance capital is allocated here. 

Primary insurers also expect prices in property lines to increase significantly in 2023 due to claims inflation, rising risks from weather-related events and lower reinsurance capacity for property lines, a business often exposed to catastrophes. 

A survey of 39 property and casualty reinsurance buyers, conducted by rival agency Moody’s Investors, found about 85% of respondents expect prices in the US and Caribbean market to rise by more than 5%, compared with just 29% of respondents last year. Four in 10 expect price rises of more than 7.5%, up from just 3% of respondents last year.

Meanwhile, life and health reinsurers have continued to see excess mortality claims linked to the Covid-19 pandemic in 2022, according to Fitch. 

The firm said while immunity levels have constantly increased, the risk of new variants remains substantial. It expects additional mortality claims to continue over the next 12 to 18 months, “albeit at a lower level than before”. 

US credit rating agency AM Best also agreed the global life and health reinsurance segment continued to face challenges in 2022. 

“Covid-19 and its related impacts contributed to elevated mortality in both the insured and general populations after starting 2020 with death claims at a manageable level,” AM Best said in a market segment report. 

The agency believes the segment has remained well capitalised through this pandemic, adding: “Although tragic and prolonged, Covid-19 has yet to show itself as a 1-in-200 years mortality event.”

When the pandemic began in March 2020, AM Best said reinsurers generally fared relatively well as fatalities disproportionately occurred in the elderly population. But as the pandemic lingered on, mortality among the US working age population increased. 

US life reinsurers are noticing a rise in a variety of causes of death, including liver disease, diabetes, and drug-related deaths, it said. 

Reinsurers’ earnings in 2021 suffered from these adverse mortality trends, although the overall impact on the profits of the life and health segments varies, according to the agency. 

Whether the pandemic will cause a permanent shift in mortality, or mortality will revert to pre-Covid levels once the pandemic has finally dissipated, remains to be seen, said AM Best. 

The agency said: “Early evidence indicates differing approaches to insurers’ mortality assumptions, with some choosing to update assumptions and pricing for the pandemic experience while others have not.”

In the US, the impact on mortality pricing “has been only slight so far”, suggesting mortality is expected to return to normal. 

However, the firm said given the ease of repricing group life insurance products, this may be an area that could see premium increases. 

Rating agency Standard and Poor’s said over the past year or so, there has been an increase in allocation to private equity and debt, driven by an expectation of better returns relative to public securities. In the first six months ended 30 June, mark-to-market investment losses reduced reinsurers' shareholder equity compared with year-end 2021. 

The agency explained that the drop varied between peers depending on their asset allocation and the duration of their bond portfolios. On average, the top global 21 reinsurers' shareholder equity dropped by 13%, 10% for Bermudian firms and 25% for the big four European reinsurers (Munich Re, Swiss Re, Hannover Re and Scor). 

“The decline for the Europeans was more pronounced owing to their longer fixed income portfolio duration because of their life reinsurance and/or their primary insurance business,” said S&P.

But it added that on the bright side, rising interest rates will increase bond yields, thereby boosting reinsurers' investment income.

It said except for a few outliers, overall, the top 21 global reinsurers have well diversified investment portfolios and are conservatively managed.