Restricting capacity has led Fitch Ratings to forecast a double-digit bump in reinsurance rates for the property catastrophe business at January renewals, significant as some 60 to 70 per cent of non-facultative reinsurance business is up for renewal January 1, as opposed to the similar exercise at July 1.

Fitch is predicting the rates could climb by a lot more than 10 per cent when contracts — with a regional focus on Europe — are signed, supporting underwriting margins against rising claims due to high inflation and climate change.

Increasing prices and higher reinvestment yields will help to offset the effects of rising claims inflation and lower asset values.

The rating agency therefore forecasts broadly stable underlying profitability for the global reinsurance sector in 2023, and is maintaining its neutral fundamental sector outlook.

Fitch said: “We expect double-digit percentage premium rate rises for property catastrophe cover in 2023 driven by insured losses of about $120 billion in 2022 and the increasing frequency and severity of natural catastrophe claims.

“Price rises will be most pronounced in the regions worst affected by natural catastrophe events in 2022, including Australia, Florida and France. Hurricane Ian is likely to have caused between $35 billion and $55 billion of insured claims, making it one of the costliest natural catastrophe events ever.

“Fitch expects reinsurance capacity for property catastrophe risks to be pressured in 2023, with selective capital inflows from existing or new risk carriers more than offset by partial or total withdrawals by other reinsurance providers.

“Furthermore, limited retrocession capacity will put additional upward pressure on property cat premium rates.

“Fitch also expects tighter terms and conditions in 2023, including a movement to named perils coverage from all perils, higher insurer retentions and reduced limits provided.

“Nevertheless, we believe demand for property catastrophe reinsurance during the 2023 renewals season will be broadly met, except for Florida.

“We expect significant premium rate increases for specialty lines of business, such as marine and aviation, that have been most affected by the war in Ukraine.

“Motor hull premium rates will also increase in response to high spare-parts price inflation, but increases for liability lines should be more muted as more reinsurance capacity will be directed to this part of the market.

“Claims inflation has yet to be pushed up by social inflation or general inflation but we expect this to change in 2023, with negative implications for underwriting margins and reserves. Underestimating claims inflation for liability lines is one of the most significant risks for reinsurers.

Fitch has updated its global reinsurance forecasts and now expects the calendar-year combined ratio to improve by about four percentage points in 2023, assuming a more normal level of natural catastrophe losses and given the withdrawal of cover related to the war in Ukraine.

“However, underwriting margins excluding natural catastrophe and war-related losses are likely to only marginally improve.

“The steep rise in interest rates in 2022 has led to writedowns on large parts of reinsurers’ investment portfolios. This has caused accounting capital to shrink significantly due to the accounting mismatch between assets and liabilities.

“However, the impact on economic and regulatory capital has been neutral to positive, and we do not consider the industry’s capitalisation to have suffered. The writedowns have also depressed investment income, leading to lower reported earnings for 2022, but rising reinvestment yields should gradually boost investment income over time.”