Reinsurance earnings will be bolstered by rising prices and gradually higher investment income amid rising interest rates, Moody's Investors Service said in a report released yesterday maintaining its stable outlook for the sector.
Recent catastrophe losses and an increased perception of risk following the pandemic have fuelled strong demand for both primary commercial and reinsurance property and casualty (P&C) protection.
At the same time, these losses and climate change concerns have prompted a sector-wide reassessment of catastrophe risk, with many reinsurers beginning to pull back capacity.
“We expect continued price increases, and higher investment yields on the back of rising interest rates to improve earnings,” said Ms. Helena Kingsley-Tomkins, a vice president at Moody’s.
Reinsurers' earnings had been deteriorating for more than a decade and over the last five years became weak and volatile as a result of COVID-19 and catastrophe claims.
The vast majority of reinsurance buyers surveyed by Moody's foresee an increase in prices, with 40% expecting price rises of more than 7.5% in property lines. This marks the third consecutive survey where respondents expected no overall price decline in P&C reinsurance.
Inflation is a key threat
Rising material and labour costs, exacerbated by the impact of post-pandemic supply chain disruption, are already holding back earnings improvements in home, commercial property and motor (re)insurance lines.
Sustained high inflation could also increase long-term care and medical costs, elevating claims and reserving risk in long-tail liability lines.