An expensive few years for the global insurance industry led by a range of natural disasters from wildfires to storms have failed to result in widespread price increases in the latest reinsurance contract renewals.
The price of reinsurance — the cover that insurance companies buy to protect themselves from high payouts — often reflects the size of claims.
The past few years have been costly. There were expensive natural catastrophes in 2017 and 2018, and to a lesser extent in 2019. And in the US, courts have been awarding ever more generous payouts to people claiming for everything from medical malpractice to injuries in motor accidents.
However, according to new data from Willis Re, the reinsurance broker, prices in the crucial January 1 contract renewal season did not increase significantly across the market.
Prices for reinsurance have been falling for much of the past decade, as low interest rates encouraged capital to flow into the industry in search of higher returns. Some in the industry have been hopeful that the recent increase in claims would mark the return of a so-called hard market, in which prices rise across the board.
“We are not in a hard market,” said James Vickers, chair of Willis Re International. “Hard markets are defined by a lack of capital, and there has not been a lack of capital. [Reinsurance] buyers with a good story can still renew.”
According to Willis Re, pricing for the latest renewals has varied sharply depending on the line of business. Prices for property reinsurance in the US, for example, rose by up to 50 per cent while through most of Europe they were flat or even down.
In casualty reinsurance, which is the area that has been affected by rising court payouts, prices in the US rose by up to 30 per cent.
There were also steep increases in the UK, where insurers have had to adjust to changes in the way that compensation payments for people seriously injured in motor accidents are calculated.
The government this year cut the amount that accident victims will receive, but not by as much as the insurance industry was expecting. That has led to increases in reinsurance prices of up to 35 per cent.
“The UK [motor] market is fragmented and ferociously competitive, and so for some of the smaller insurance companies this is a challenge.”
Mr Vickers said that, overall, reinsurers were becoming more discerning about which business they wanted to write.
“In the old days, people’s technological and analytical understanding of pricing was not as good as it is today,” said Mr Vickers. “The days of general market increases have probably gone, although within the market there will be cycles.
“The days of sitting as a reinsurer and enjoying the tide that lifts all boats have gone. It’s a lot more complicated.”