Inflation is expected to become a significant issue at 1 January renewals, being an ongoing challenge to carriers' profitability, according to a forecast posted on the website of global law firm Clyde & Co.
At the Baden-Baden meeting in October 2022, inflation was at the front of European reinsurers’ minds, says Ms. Eva-Maria Barbosa, a partner based in Clyde & Co's Munich office, in a blog that is part of insights published in the law firm’s “Insurance 2023—the Year Ahead” series of articles.
The impact of inflation on the cost of doing business means insured losses will be more costly across all lines of business, leading to an inevitable increase in deductibles on renewing coverage, Ms. Barbosa says.
From the reinsurers’ perspective, these will mean a reduction in the amount of more profitable first-layer business that they can write, skewing the balance of portfolios towards more volatile, large-loss coverage.
At the same time, the influence of climate change on natural catastrophe losses is causing reinsurers to re-think their approach to European exposures.
Whereas insurers have historically viewed European nat cat as a valuable hedge against US hurricane risks, recent events such as the flooding in Germany’s Ahr valley and the hailstorms in France are making the balance between US and European business unsteady.
With practically no alternative capital available for these risks currently, there is likely to be a sharp reduction in available nat cat reinsurance capacity at upcoming renewals, and this development is likely to extend well into next year, says Ms. Barbosa.