Analysts note how there’s also still uncertainty surrounding the pandemic and that there still remains a capacity-constrained dislocated retrocession market.
Reinsurers are expected to take advantage of the most favourable market environment since at least 2005, with reinsurance renewal rates soaring across almost all business lines, as well as tightening terms and conditions.
Fitch expects that, even with the sufficient levels of traditional reinsurance capacity available, price increases will continue and considers the renewed push for higher rates as being driven by several factors.
These include persistent heightened catastrophe losses, continued record low interest rates, deteriorating loss cost trends with rising social inflation and declining reserve adequacy. Also, most recently, there has been uncertainty surrounding the significant ultimate losses from COVID-19.
Additionally, Fitch says reinsurers are facing higher retrocessional pricing from constrained retro capacity resulting from another year of trapped capital.
Analysts have also highlighted the role terms and conditions, which are becoming more favourable to reinsurers, is playing.
Reinsurance treaties have reportedly removed insurer-friendly cascading and top and drop features and added loss adjustment expense caps and communicable disease exclusions.
Fitch says the Asia-focused April and Florida-focused June and July renewals showed a second consecutive year of sizeable reinsurance rate increases due to substantial loss creep and additional loss events.
This includes nearly $15 billion of industry adverse development in 2019 from 2018’s Typhoon Jebi and Hurricane Michael and 2017’s Hurricane Irma, as well as 2H19 losses from Typhoons Hagibis and Faxai and Hurricane Dorian.