Monte Carlo Inflation doesn’t stop at insurers either. Added to this is the damage caused by climate change and the war in Ukraine. Policyholders must take into account the sharp increase in premiums.
In view of the growing number of natural catastrophes and high inflation, the world’s largest reinsurers want to raise prices considerably. Clients of primary insurers such as Allianz and Axa will likely have to get more out of their pockets from 2023, the world’s third-largest reinsurer Hannover Re announced at the industry meeting in Monte Carlo on Monday. According to board member Michael Pickel, premiums in Germany for motor vehicle insurance and private homeowners insurance have to increase significantly to cover the costliest damages.
Pickel cited rising costs for auto parts and repairs as the reason. Here alone, price increases would be around ten percent. In the case of real estate, construction costs and values have soared about 15 percent. In addition, Hannover Re wants surcharges for increased risks, for example as a result of increased natural disasters as a result of climate change.
In the so-called proportional business, reinsurers accept part of the risks of their clients’ contracts from primary insurers and receive part of the premiums in return. In other contracts, for example, they only intervene for damages in the event of natural disasters above a certain total amount.
conditions are explored
After a two-year break due to the corona pandemic, representatives of the reinsurance industry have been meeting clients and brokers again in the Principality of Monaco on the Côte d’Azur since the weekend. In the “Rendez-vous de Septembre” they will explore the conditions for the renewal of contracts in the property and casualty business in the next turn of the year until Wednesday.
World market leader Munich Re had already called for a significant rise in premiums on Sunday to offset the expected rise in claims. The second in the industry, Swiss Re, joined the lawsuit.
Rating agency Moody’s expects providers to prevail this time. “Primary insurers are increasingly accepting that they have to pay more for reinsurance protection,” Moody’s analyst Helena Kingsley-Tomkins told financial news agency dpa-AFX in Monte-Carlo. A year ago, only one in 40 primary insurers said they expected a price increase in non-life reinsurance, her colleague Marc Pinto said. “This time, 40 percent of those surveyed expect even more than a 7.5 percent increase.”
Hannover Re boss Jean-Jacques Henchoz referred to the sharp rise in inflation in many countries. Together with the war in Ukraine and the still unresolved corona pandemic, this is creating ever-increasing burdens for insurers and reinsurers. Therefore, further price increases in the reinsurance business are inevitable.
According to estimates by Swiss Re and the Fitch rating agency, insured losses as a result of Russia’s war of aggression in Ukraine should be around US$10 billion (€9.9 billion). This is roughly equivalent to a medium-sized natural disaster, Fitch analyst Harish Gohil said. Direct war risks are generally not insured.
The actual sum depends mainly on court rulings on several hundred planes that foreign aircraft financiers leased from Russian airlines and did not take back. In March, Fitch had estimated the damage from this alone at up to $10 billion. About half of that is included in the latest overall estimate, Gohill said. According to Hannover Re board member Sven Althoff, there was no longer any insurance cover for the aircraft after the contracts were terminated.
The fact that reinsurance protection is soon becoming more expensive in general is also due to reduced supply. Reinsurers’ capital had fallen recently due to turmoil in financial markets and rising interest rates. With less capital, companies can take less risk than before.
“The industry does not lack capital”
The capacity to cover natural catastrophes in Florida is already limited, he said in Monte Carlo. The US state is repeatedly hit by hurricanes. However, Moody’s sees capacity cuts by many reinsurers as a voluntary withdrawal: “The industry is not short of capital,” analyst Pinto said.
Meanwhile, Hannover Re assumes that prices for coverage against natural catastrophe risks will increase in Europe, especially after the devastating flood of July 2021 and the winter storms of February 2022. This will also make the catastrophe business more interesting for Hannover Re, said Silke Sehm, member of the Executive Board.
Like Munich Re and Hannover Re, Swiss Re expects growing demand for reinsurance protection. The company also wants to expand its natural catastrophe business in the course of this, as it announced in the morning.
The big providers are less courageous when it comes to cyber insurance against hacker attacks and other incidents on computer systems. Munich Re and Swiss Re continue to assume that the cyber insurance market will grow to $20 billion or more by 2025. However, they are reluctant to expand their business due to the scale of the impending damage.
“It shouldn’t be that we offer policies with premiums that don’t cover the risks,” said Swiss Re manager Thierry Léger. After all, this area is still little explored. According to his own statements, Munich Re recently accounted for about 14 percent of global cyber premium volume of about $10 billion. For Torsten Jeworrek, member of the board, this is too much in the medium term: “If the market develops, our market share will decrease,” he clarified in Monte Carlo.
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