The economic parameters that marked a tough reinsurance cycle in 2023 won’t be going anywhere in the next year, experts predict in a Canadian Underwriter webinar.
However, the extreme rate increases that insurers saw this year won’t be sustainable for future renewals, panellists said during What happened at the January reinsurance renewals?
“There are certain parameters driving the market situation we have right now, and I think the main parameters have not really changed,” said Claus Ulrich-Kroll, president and CEO of Munich Reinsurance Company of Canada. “I believe this will continue, seeing the parameters that surround us. And if they stay that way, I don’t see that we will move all the cycles too soon.”
Economic impacts, such as inflation, geopolitical tensions, and exceeding damage from NatCats all factor into the future of reinsurance renewals, Ulrich-Kroll suggests.
“There is still a war going on in the Ukraine, inflation is still there,” he said. “We have ongoing global economic uncertainty…in the last weeks with what happened in the banking sector. There is still pressure on the financial performance of the reinsurance sector and one renewal is definitely not changing the picture, I believe this might be more a long-term perspective.”
Plus, reinsurers will factor the impacts of climate change into their rates for the next years, Ulrich-Kroll says.
Some portfolios without a significant loss history saw increases of 25% to 30%, while other portfolios with losses saw their reinsurance rate increases climb as high as 50% to 70%, Donald Callahan, managing director of Guy Carpenter Canada, shared. “I can’t imagine that for January 1, 2024, we’re going to see 30 to 50% rate increases again. It all depends, of course, on what takes place externally.
“Perhaps from here on in, we’re looking at inflation plus loadings [to rates] that are necessary, but obviously [insurers] are not going to sit there and take 30 to 50% [increases] every year.”
Kristen Gill, head of personal insurance at Aviva Canada, agreed that rates wouldn’t continue to increase so dramatically.
“I don’t think there’s anything that would indicate that things are going to be easier next year,” she said. “It’s not probably going to be the same again and again, and again—that would be absolutely unsustainable—but life is not going to go back to 2022.”
But that means insurers need to start to react proactively for the future reinsurance cycle.
“What that means for companies like us is we need to get better at scenario testing and modeling and projecting out, so that we can be prepared for a variety of eventualities, and we can have plans in place regardless of what happens on January 1, 2024.”
For Insurance Bureau of Canada, high reinsurance renewals mean further education for governments and consumers
“Our interest as the industry association for P&C is to monitor and see how this plays out for consumers. That’s where government will be keen as to see how these pressures exhibit themselves on businesses and on homeowners,” said Liam McGuinty, vice president of strategy at IBC. “We would use any government attention on pressures for instance, on premium, to talk about the role of government in mitigating property risk.”
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