Reinsurance rate increases for property catastrophe business are likely to slow to below 10 per cent on average when contracts are renewed in January 2024, Fitch Ratings has forecast.

Improvements in underwriting margins will therefore be less significant than in 2023. Typically, two-thirds of non-facultative reinsurance business is renewed in January, mostly in Europe.

Price increases, and better terms and conditions in 2023, and to a lesser degree in 2024, will continue to support underwriting margins.

Normalised for major losses, Fitch expects margins to peak in 2024.

One of the big three credit rating agencies, the Fitch analysis said: “Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields.

“Fitch therefore forecasts an improvement in underlying profitability for the global reinsurance sector in 2024 and is maintaining its improving fundamental sector outlook.

“Insured natural catastrophe claims are likely to exceed $100 billion again in 2023 but global reinsurers have been far less affected than in 2022.

“Negotiated attachment points for reinsurance cover are higher, and aggregate covers less available, meaning that reinsurers bear a lower share of medium-sized natural catastrophe claims and cedents a higher share.

“We do not expect this to change much in 2024 as reinsurers’ appetite for lower layers of property catastrophe risk remains limited.

“We expect price increases for property catastrophe cover to be higher in loss-affected regions but moderate elsewhere.

“Major loss events in 2023 included severe convective storms, particularly in the US. Hailstorms in Germany, flooding in Italy, wildfires in Hawaii, Hurricane Otis in Mexico and the earthquake in Turkey added to the bill.”

Fitch believes reinsurance and retrocession capacity for higher layers of property catastrophe risk should be sufficient to meet demand in 2024.

It added: “Traditional reinsurers’ have greater appetite for these layers, and selective capital inflows from alternative capital providers will supplement the supply of cover. This should result in less upward pressure on prices than during the January 2023 renewals.

“We expect premium rate increases for specialty lines of business to vary widely, depending on the respective loss experience in 2023.

“Price rises will be most pronounced in political risk, terrorism and political violence lines due to higher levels of unrest, coups and riots globally. In other specialty lines, we expect mid-single-digit price increases, on average.

“In casualty lines, we expect price increase to average in the low to mid-single digits. The push for higher prices in the US to counter social inflation could lead to mixed results in 2024.

“Reported claims have started to accelerate again recently.

“Fitch has updated its global reinsurance forecast and expects the calendar-year combined ratio to improve by a sizeable 5.5 percentage points in 2023, driven by reduced cover for catastrophe losses.

“However, Fitch forecasts the combined ratio to increase by about 2 percentage points in 2024 as the return of more large natural catastrophe events would push the ratio up although underwriting margins excluding catastrophe losses should marginally improve.”