The convergence of geopolitical and macroeconomic shocks, as well as the second most expensive natural disaster ever (Hurricane Ian), has introduced significant volatility into the insurance market, according to Howden’s annual market report, published today.
Divergent rate momentum by class of business had been the recent norm as individual mini-cycles responded with varying levels of sensitivity to losses and broader macroeconomic factors, according to the broker. Pricing cycles in the commercial insurance and reinsurance sectors are now converging, marked by price increase moderation overall for the former, albeit with strengthening in challenged areas, and rapid acceleration (dislocation even) for the latter.
Mounting pressures in the reinsurance market, already evident during last year’s mid-year renewal cycle were exacerbated significantly by Hurricane Ian, reinforcing one of the hardest reinsurance markets in living memory. Demand-side pressures coincided with a severe capacity crunch, as capital providers pulled back whilst others were only willing to maintain allocations.
This was, in turn, driven by a significant impairment of dedicated reinsurance capital, which fell sharply as investment grade securities experienced their worst performance in over 40 years.
“The reinsurance sector has reached concurrent secular and cyclical tipping points,” said David Flandro, Howden’s head of analytics. “It is experiencing sustained, heightened loss activity and war risk just as the global economy exits the ‘great moderation’ of interest rates and asset price volatility. Pursuant increases in carrier costs of capital are underpinning higher rates-on-line, lower capacity levels, and straitened terms and conditions.
“The last time we saw this level of capital dislocation was during the 2008-2009 global financial crisis. At the same time, the sector is experiencing its most acute, cyclical price increases since the 2001-2006 period if not before.”
Chart: Howden pricing index or primary, reinsurance and retrocession markets – 2012 to 2023 (Source: NOVA and Howden)
See the Q1 2023 issue of CIR Magazine for more on this report.
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