In view of the increasing number of natural catastrophes and high inflation, the world's largest reinsurers want to tighten the price screw. The customers of primary insurers such as Allianz and Axa will probably have to dig deeper into their pockets from 2023, announced the world's third-largest reinsurer Hannover Re on Monday at the industry meeting in Monte Carlo. According to board member Michael Pickel, premiums in Germany must increase by ten percent or more for both motor vehicle insurance and private home insurance just to cover the consequences of inflation.
The main reason he gave was the increased costs for car spare parts and repairs. For this alone, primary insurers would have to increase premiums in motor vehicle insurance by around ten percent in 2023. In residential building insurance, he even assumes about 15 percent, because construction costs and property values have risen by that much. In addition, according to Pickel, there are surcharges for increased risks - for example due to increased natural disasters as a result of climate change.
Conditions are explored
In the so-called proportional business, reinsurers assume part of the risks from primary insurers from their customer contracts and in return receive a corresponding share of the premiums. In other contracts, for example, they only step in for damages in the event of natural disasters above a certain total amount.
After a two-year break due to the corona pandemic, representatives of the reinsurance industry have been meeting with their clients and brokers again since this weekend in the Principality of Monaco on the Cote d'Azur. There they are still exploring the conditions for contract renewal in property and casualty business at the upcoming turn of the year until Wednesday.
"Long-term trend towards ever higher loads"
"In many regions, inflation rates are higher than they have been for decades," said Jean-Jacques Henchoz, CEO of Hannover Re. "Together with the war in Ukraine and the still unresolved pandemic, this is fueling the long-term trend towards ever-increasing burdens for insurers and reinsurers." Further price increases are therefore unavoidable in property-casualty reinsurance. This also applies to areas that were recently not affected by particularly high levels of damage.
How expensive the consequences of Russia's war of aggression in Ukraine will be for insurers and reinsurers is not yet foreseeable. Like Swiss Re, the rating agency Fitch is now assuming an insured total loss of around USD 10bn (EUR 9.9bn). This corresponds to a medium-sized natural disaster, said Fitch analyst Harish Gohil in Monte Carlo.
The actual sum depends primarily on court rulings on several hundred aircraft that foreign aircraft financiers leased to Russian airlines - and are now unable to get back. Fitch had estimated the potential damage at up to $10 billion in March. If the insurers have to take full responsibility for this, the total insured damage from the war could rise to around 15 billion, Gohil said. In the opposite case, only 5 billion would be conceivable.
The fact that reinsurance contracts are likely to become more expensive in general in 2023 is also due to a reduced supply. The reinsurers' capital has recently fallen due to the turbulence on the financial markets and the rise in interest rates. The rating agency A.M. For 2022 as a whole, Best assumes a decline of more than eight percent to $435 billion. This would be the first time since 2018 that global reinsurance capacity has fallen. With less capital, companies can shoulder fewer risks than before.