By Ranamita Chakraborty
Moody’s recent annual survey of P&C reinsurance buyers saw most respondents (48%) regarding the COVID-19 pandemic as one of the major factors behind increasing reinsurance prices in 2021
These respondents expect reinsurance prices to rise by at least 5% next year as the fallout from COVID-19, more volatile natural catastrophe losses and capacity constraints take a toll on reinsurers’ profitability.
Over 90% of respondents expect price increases in 2021 across all lines while none foresaw a decrease. By comparison, less than 50% of respondents expected price rises last year, while some had expected prices to fall.
“Some respondents commented that price increases could move even higher next year if financial market conditions deteriorated in the second half of 2020, or if this year’s US hurricane and wildfire seasons result in higher than expected losses,” said Moody’s vice president and senior credit officer Brandan Holmes in a report published on the survey results.
While some buyers expect to purchase more reinsurance in 2021, the increase will be smaller than in the last two years, as higher prices dampen demand.
A significant majority of buyers expected the trend of rising costs on casualty business to continue. However, the responses from the survey suggest that demand for casualty reinsurance will remain steady, after increasing over the past two years.
At the same time, the deteriorating risk environment has made reinsurers’ financial strength and reputation a more critical consideration for some buyers. These attributes have become increasingly significant over the past years.
Moody’s notes that the focus on these factors is unsurprising, given increasing financial strain on reinsurers due to coronavirus-related claims and financial market volatility along with rising loss cost trends and consecutive years of significant natural catastrophe losses.
Asia Insurance Review