Reinsurers Expect Growth to Continue Amid Inflation, High Demand

By Adam Whittaker

Reinsurers expect growth in the reinsurance market to continue, driven by inflation and rising demand for protection, even if some areas are stabilizing.

The reinsurance industry--which sells policies to insurers to limit the risk of losses from disasters such as hurricanes and earthquakes--has benefited from more favorable pricing conditions in recent rounds of contract renewals. Inflationary pressures, interest rates and high natural-catastrophe losses paved the way for a so-called hard reinsurance market, in which premiums experience broad-based increases.

While demand for reinsurance protection is expected to remain high, a weak global economy, geopolitical instability, climate change and increasing levels of litigation pose threats to the industry, reinsurers said while at industry event Rendez-Vous de Septembre in Monaco.

After several years of pronounced growth, the global reinsurance market is set to grow by 2%-3% over the next three years, according to Munich Re. The industry has achieved a balance in an environment characterized by high demand, the German reinsurer said.

Prices and conditions continued to improve for reinsurers in some areas at this year's rounds of treaty renewals, while in others they stabilized at the level of 2023, Hannover Re said.

Demand for natural-catastrophe protection continues to grow and a greater supply of reinsurance capacity will be needed globally to reduce a protection gap that has the potential to expand in the future, according to Hannover Re.

The threat to assets, infrastructure and business from climate disasters is global, the reinsurers said. The 2024 Atlantic hurricane season is set to be one of the most active in 30 years, while in Europe the threat of flooding is increasing and has resulted in an increased number of claims in Germany this year, according to Hannover Re.

Increasing litigation in the U.S. is also a growing concern for the industry, according to reinsurers. Swiss Re Institute's new social inflation index shows that social inflation--where insured liability claims increase faster than can be explained by economic factors--has been rising due to a higher tendency to settle compensation claims in court. This is leading to underwriting losses, heightened uncertainty and reduced insurance capacity for businesses.

The use of litigation to settle claims is spreading to the U.K. due to the expansion of mass tort claims, and the trend is likely to spread to the EU given accessible litigation funding and legal reforms broadening product liability and collective redress, the report found.

The global cyber insurance market is set to experience substantial growth, and recent cyber incidents--such as the Crowdstrike outage in July--underscore the scale of the aggregation risk, said Hannover Re.

Meanwhile, unrest in New Caledonia demonstrated the potential for losses caused by strikes, riots and geopolitical instability, the company said.

Write to Adam Whittaker at adam.whittaker@wsj.com

(END) Dow Jones Newswires

September 09, 2024 06:13 ET (10:13 GMT)

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