insurance
Inflation and climate: reinsurers want more money
– Hanover Re headquarters. Photo © Holger Hollemann / dpa
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Inflation doesn’t stop at insurers either. Added to this are the damage caused by climate change and the war in Ukraine. Policyholders have to contend with soaring premiums.
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In view of the growing number of natural disasters and high inflation, the world’s largest reinsurers want to drastically raise prices. Clients of primary insurers like Allianz and Axa will likely have to dig deeper into their pockets starting in 2023, the world’s third-largest reinsurer Hannover Re announced Monday at an industry meeting in Monte Carlo. According to board member Michael Pickel, premiums in Germany for motor insurance and insurance for private homeowners need to rise significantly to cover more costly damages.
Pickel cited rising costs for auto parts and repairs as a reason. Here alone, the price increase would be around ten percent. In the case of real estate, construction costs and values increased by around 15 percent. In addition, Hanover Re wants surcharges due to increased risks, for example due to the increase in natural disasters due to climate change.
In the so-called proportional business, reinsurers accept part of the risks arising from their clients’ contracts with 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 exceeding a certain total amount.
Conditions are explored
After a two-year hiatus due to the corona pandemic, representatives from the reinsurance sector have met again with clients and brokers in the Principality of Monaco on the French Riviera since the weekend. At the “Rendez-vous de Septembre” they will explore the conditions for renewal of contracts in the real estate and claims sector at the beginning of the year until Wednesday.
World market leader Munich Re had already asked for a significant increase in premiums on Sunday to offset the expected increase in claims. The second in the sector, Swiss Re, has joined the demand.
Rating agency Moody’s expects suppliers 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 expect non-life reinsurance prices to rise, colleague Marc Pinto said. “This time, 40 percent of respondents even expect an increase of more than 7.5 percent.”
Increasing loads
Hannover head King 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 placing ever greater burdens on insurers and reinsurers. Further price increases in the reinsurance sector are therefore inevitable.
According to estimates by Swiss Re and the rating agency Fitch, the insurance losses following the Russian war of aggression in Ukraine should be around 10 billion dollars (9.9 billion euros). 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 the court rulings on several hundred aircraft that financiers of foreign aircraft leased to Russian airlines and were not returned. In March, Fitch estimated the damage caused by this alone as high as $ 10 billion. About half is included in the most recent overall estimate, Gohill said. According to Hanoverian board member King Sven Althoff, there was no longer any insurance coverage for the plane after the contracts were terminated.
The fact that reinsurance protection will soon become more expensive in general is also due to a reduced supply. Reinsurers’ capital had recently declined due to turbulence in the financial markets and rising interest rates. With less capital, companies can take less risk than before.
“The industry is not short of capital”
Florida’s ability to cover natural disasters is already limited, he said in Monte Carlo. The US state is repeatedly hit by hurricanes. However, Moody’s sees the capacity cuts of many reinsurers as a voluntary withdrawal: “The industry is not short on capital,” said analyst Pinto.
Meanwhile, Hanover Re assumes that prices for natural disaster risk coverage will rise in Europe, especially after the devastating flood catastrophe of July 2021 and the winter storms of February 2022. This will make the natural disaster business more attractive also for Hannover Re, said Silke Sehm, a member of the board of directors.
Like Munich Re and Hannover Re, Swiss Re expects a growing demand for reinsurance protection. The company also wants to expand its business in the event of natural disasters during this one, as announced in the morning.
Big vendors are less brave when it comes to cyber insurance against hacker attacks and other computer system incidents. 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 magnitude of the impending damage.
“It doesn’t have to be that we offer premium policies that don’t cover risk,” said Thierry Léger, manager of Swiss Re. After all, this area is still little explored. According to its own statements, Munich Re recently accounted for around 14% of the global cyber premium volume of around $ 10 billion. For board member Torsten Jeworrek it 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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