Inflation will make 1/1 reinsurance renewals challenging

Sharp reduction in available nat cat reinsurance capacity predicted

At this year’s Baden-Baden meeting, inflation was at the front of European reinsurers’ minds, with this ongoing challenge to carriers’ profitability expected to become a significant issue at 1 January renewals.

The impact of inflation on the cost of doing business means insured losses will be more costly across all lines of business, leading to an inevitable increase in deductibles on renewing coverage.

From the reinsurers’ perspective, these will mean a reduction in the amount of more profitable first-layer business that they can write, skewing the balance of portfolios towards more volatile, large-loss coverage.

At the same time, the influence of climate change on natural catastrophe losses is causing reinsurers to re-think their approach to European exposures.

Whereas insurers have historically viewed European nat cat as a valuable hedge against US hurricane risks, recent events such as the flooding in Germany’s Ahr valley and the hailstorms in France are making the balance between US and European business unsteady.

The confluence of a higher frequency of European cat events, greater severity of losses from climate change driven perils such as flood, and the impact of inflation on the cost of nat cat claims is creating a perfect storm for (re)insurers of European property cat business.

With practically no alternative capital available for these risks currently, there is likely to be a sharp reduction in available nat cat reinsurance capacity at upcoming renewals, and this development is likely to extend well into next year.

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