Fitch: Reinsurance rates continue hardening

The reinsurance market continued hardening at the January 2021 renewals 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, according to a new report by Fitch Ratings. However, these improvements were capped by abundant capital in the market.

Both traditional and alternative reinsurance capital were largely unchanged during 2020, despite heavy losses caused by the coronavirus pandemic and by natural catastrophes. Capital injections of over USD20 billion and a recovery in financial markets helped to maintain the reinsurance capacity at the levels of early 2020, proving the resilience of the market.

Fitch believes that real price improvements will reach two percent – four percent in 2021, leading to better technical results – assuming a normalised natural catastrophe claims level. Fitch expects the return on capital of the reinsurance sector to improve significantly in 2021 compared to the low-single-digit return forecast for 2020, but to remain slightly short of the industry’s cost of capital.

Natural catastrophes caused approximately USD76 billion of insured losses last year, while man-made losses accounted for USD7 billion of claims in 2020. Total large losses were 25 percent above the long-term average.