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Reinsurance prices to rise 5% amid pandemic, natural catastrophe risk, says Moody’s

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Reinsurance prices are expected to rise by at least 5% next year as the fallout from the coronavirus, more volatile natural catastrophe losses and capacity constraints take a toll on reinsurers profitability, Moody’s said in its annual survey of P&C reinsurance buyers.

Over 90% of respondents expect price increases in 2021 across all lines, while none foresaw a decrease. By comparison, less than 50% of respondents expected price rises last year, while some had expected prices to fall.

“Some respondents commented that price increases could move even higher next year if financial market conditions deteriorated in the second half of 2020, or if this year’s US hurricane and wildfire seasons result in higher than expected losses,” said Brandan Holmes, a Vice President and Senior Credit Officer at Moody’s.

Price increases this year are expected to be strongest for cat-exposed property reinsurance, reflecting rising capacity constraints, with over 80% of buyers expecting prices to rise by more than 5% across most lines, compared with just 16% last year. Price increases in loss affected lines will be higher.

While some buyers expect to purchase more reinsurance in 2021, the increase will be smaller than in the last two years, as higher prices dampen demand.

The rating agency added that a significant majority of buyers expected loss cost trends on casualty business to continue rising, although the responses suggest that demand for casualty reinsurance will remain steady, after increasing over the past two years.

The deteriorating risk environment has made reinsurers’ financial strength and reputation a more important consideration for some buyers, with these attributes increasing in importance over past years.

Some of the larger insurers that responded to the Moody’s survey also named bespoke services and support for new product offerings as key features of their core reinsurers.