Fitch Ratings has forecast global reinsurer underwriting performance will improve in 2022 as premium rate increases take hold, with further rate increases supported by persistent heightened catastrophe losses, continued low interest rates and mounting inflation concerns.

The agency’s new report did note, however, that concerns remain regarding deteriorating loss-cost trends, rising social inflation and litigation costs and the pace of the global economic recovery on future underwriting results.

Non-life reinsurance net premiums written grew by a substantial 18.5 per cent in the first half of the year, as prices continue to rise and demand remained strong.

Reinsurance renewal rates continued to increase in 2021, although pricing momentum slowed after two years of improving rates amid abundant capacity.

The report said that renewals had largely not taken into consideration pandemic-related losses but that could change in 2022 with improved clarity around the ultimate losses.

It also said that favourably for reinsurers, communicable disease exclusions remain widespread in property treaties.

Rate increases are likely to continue at the January 2022 renewals, albeit at somewhat reduced high single-digit/low double-digit levels, as rate adequacy is approached.

European property rates in particular could be poised for an uptick in 2022 given recent increased catastrophe losses in the region.

Fitch said current pricing is still inadequate in the face of rising catastrophes.

Global (re)insured natural catastrophe losses were a manageable $40 billion in the first half of the year, up from $35 billion in the same period last year, and above the $33 billion 10-year average (2011–2020) of insured losses for the comparable period.

The rating agency conceded that July flooding in Europe could add $8 billion to catastrophe losses for the second half of the year, with potential additional losses from the active Atlantic hurricane season.

Non-life reinsurers saw considerable year-over-year improvement in the first six-months underwriting results, shifting to an underwriting gain as pandemic-driven losses subsided.

The 17 non-life reinsurers monitored by Fitch posted an aggregate reinsurance calendar year combined ratio of 94.5 per cent, down 11 percentage points from 105.9 per cent in the first six-months of 2020, which included $6.1 billion of Covid-19 pandemic-related reinsurance losses.

Fitch expects underlying combined ratio improvement to persist into 2022 as premiums earn through.