Berenberg expects market hardening to slow this year

Analyst Berenberg said the reinsurance market will continue to harden this year after rate increases at 1 January, but expects the pace of change to slow.

The German firm also predicts that the hard market will become more fragmented in 2022.

“The continued uncertainty caused by the pandemic, the presumed increases in natural catastrophe risk and the industry’s ongoing desire to improve returns are likely to ensure that the market continues to harden, albeit at a slower pace, for the remainder of the year. However, we would expect the market to be rational, with the highest rate increases reserved for loss-affected lines and a more pragmatic approach to non-loss-affected business,” said the analyst.

The comments came in a note on 1 January 2022 renewals. Berenberg said early indications reveal a continued hard market at year-end, albeit with big differences between loss-hit and non-loss-hit risks.

Berenberg said rate increases kept pace with expectations, with US business largely determined by loss experience and more upward pressure on European catastrophe lines.

It noted that Guy Carpenter’s global property catastrophe rate-on-line index rose by 10.8% at 1 January 2022, which is more than double the increase last year.

Guy Carpenter estimates that non-loss-hit property reinsurance renewals were generally flat to up 7%, while loss-hit renewals rose by 10% to more than 30%.

The retro end of the market has also seen significant dislocation, with loss-hit covers witnessing solid double-digit percentage increases, said Berenberg.

It flagged five key trends at year-end renewals.

First, a general pullback in aggregate capacity across both reinsurance and retro cover.

Second, US catastrophe rates increased further but with varying views on how much of this compensates for the new assumed norms of higher cat risk.

Third, European cat risks saw the biggest rate corrections in Storm Bernd-impacted areas. European cat is, however, coming from a much lower baseline. The broader increases are expected to have been in single-digit percentages, and are likely to lead some market commentators to continue to view rate adequacy poorly in the region, said Berenberg.

Fourth, casualty reinsurance rates for quota share business are largely expected to lead to combined ratio improvements for carriers.

And fifth, cyber rates continue to increase quite substantially, but elsewhere speciality lines were flatter than cat business.

Berenberg also noted that most experts stress that risk aversion, rather than a lack of capacity, is the key driver for much of the market hardening.