Hard market real – Fitch

The growing threat of secondary perils will pile further pressure on the reinsurance sector in the years to come according to Fitch Ratings.

Speaking at the Monte Carlo Rendezvous Manuel Arrive, director in Fitch Ratings’ Insurance group, based in Paris, warned the hard market was here and likely to stay for the foreseeable future as the industry fought challenges on several fronts.

He cited the level of natural catastrophe losses for the first half of 2022 were way over the long-term average, despite there having been no named windstorm in the the North Atlantic throughout August.

However, the floods in Australia and in France has seen the issue of secondary perils once again impact the market.

“Secondary perils have once again shown to be a significant issue for the market in the first half of the year,” he explained.

Arrive added. “In terms of natural catastrophes, last year was the fourth most expensive ion record and the first half of this year has seen losses significantly above the long-term average.”

As reinsurers look to reduce their exposures to certain nat cat perils, some of this has also been driven by the lack of retrocessional capacity against a backdrop of rising severity and frequency.

Arrive said the ILS and cat bond market were remaining steady but that investors had changed the approach to natural capacity amid fears that the current models leave too much uncertainty.

“Cat Bond are still attractive to investors but then are looking to be better rewarded for the greater risks they are being asked to assume,” he added. “ILS issuance has remained steady this year but again the terms are changing as the investors are looking for higher returns.”!

Arrive warned the looming risk from inflation continues to tax the market.

While in the property casualty risks there is already a clear impact on casualty Arrive warned while there was little to see at present the future may look completely different.

“This maybe the calm before the storm in casualty,” he explained. “It normally takes some time for the impact in wages to work its way through. IT is of more concern in the long tail lines due to the compounding effects on long term inflation.

“Also, currently investment income is at a turning point.”

Fitch believes that the losses from Ukraine this year will be in the region of $2.4 billion mainly in the marine, political violence, and trade credit classes. However, it warned the figures did not include the aviation sector where the losses were harder to determine but are expected to be significant.

“We estimate that it will be in the region of $10 billion, but that is not as level of losses that have been reported as yet,” Arrive added. “It would be seen as a mid-sized catastrophe event for the market and this year we believe it will add around 1.6% to the combined ratio.”