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Reinsurance renewals indicate signs of hardening

Insurers and takaful operators (ITOs) have reported increased reinsurance rates on the renewal of cover, higher reinstatement costs for reinsurance coverage when limits are exhausted, and higher deductible thresholds that apply for claims, especially for excess of loss treaties, says Bank Negara Malaysia (BNM).

In its “Financial Stability Review – Second Half 2022” report, says that more onerous clauses—such as loss participation clauses which require ITOs to partially contribute to reinsured losses—have also been introduced. In addition, ceding commissions paid to ITOs have been on a reducing trend.

The hardening in the reinsurance market has been driven mainly by large losses from natural catastrophes in recent years leading to reduced global capacity. ITOs expect the hardening cycle to persist in the near term.

While this could place upward pressure on direct premium rates, particularly affecting costs borne by businesses for commercial insurance, steps being taken by ITOs to optimize their reinsurance programmes would help moderate the impact on business costs.

Any impact is further mitigated by the relatively low contribution of insurance costs to total business costs. The Bank continues to monitor the impact of developments in this area on end-consumer premiums and the adequacy of reinsurance arrangements put in place by ITOs to protect against a more volatile claims environment.



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