Global reinsurers see inflation, war driving higher rates

BERLIN/LONDON: Global geopolitical tensions, high inflation and climate change have heightened demand for risk protection and will lead to increased premiums, top reinsurers said at the industry’s annual gathering in Monte Carlo.

Reinsurers insure the insurers and have been pushing up premiums in recent years as they have faced higher losses.

“On top of impacts from COVID-19 and increasing losses from natural catastrophes, the reinsurance industry is now confronted with issues like inflation, risk of recession and geopolitical tensions,” said Moses Ojeisekhoba, Swiss Re’s chief executive officer reinsurance, in a statement on Monday.

“As we see cost drivers accelerating in this dynamic risk environment, insurance premiums must be carefully calibrated to keep pace,” he added.

Reinsurers meet their insurance clients in Monte Carlo to hammer out contracts ahead of the key Jan. 1 reinsurance renewal season.

Rates could rise in the “mid-single digit” per cent range, S&P analysts said last week, while a Moody’s customer survey showed expectations for double-digit rate rises in US property reinsurance.

Rates could rise by 10 per cent or more in some markets, Munich Re and Hannover Re executives also told media briefings on Sunday and Monday, given the strength of inflation.

“It’s not an easy time,” Hannover Re CEO Jean-jacques Henchoz said.

“We have a general environment which is very volatile because of the direct and indirect implications of the Ukraine war and inflation is the driving topic in many of our discussions here in Monte Carlo.”

Hannover Re highlighted the impact of the war in Ukraine, which Russia calls a “special military operation”, on the aviation and marine markets.

However, the changing environment also provides some opportunities for insurers and reinsurers.

The Swiss Re Institute expects $33 billion to be generated in commercial premium volumes in the period from 2022 to 2026 as companies relocate their supply chains closer to their home countries.

Swiss Re also plans to further grow its natural catastrophe portfolio, where the market is forecast to grow to $48 billion from $35 billion in the next four years.

Meanwhile Germany’s economy will contract next year as a dramatic rise in energy costs due to the war in Ukraine extinguishes the chances of recovery after pandemic-related lockdowns, the Ifo institute said on Monday in a U-turn from its forecast three months prior.

The institute reversed its June forecast of 3.7 per cent growth for 2023 and now predicts that Europe’s largest economy will contract by 0.3 per cent. At the same time, it bumped up its forecast for 2023 inflation by 6 percentage points to 9.3 per cent.

For 2022, Ifo lowered its growth forecast to 1.6 per cent from 2.5 per cent and raised its inflation forecast to 8.1 per cent from 6.8 per cent.

“The cuts in gas supplies from Russia over the summer and the drastic price increases they triggered are wreaking havoc on the economic recovery following the coronavirus,” said Timo Wollmershaeuser, head of Ifo’s economic forecasts.

The first quarter of 2023 will be particularly rough for consumers as energy suppliers adjust their prices in response to high procurement costs, driving inflation to around 11 per cent, said the institute.

As a result, households will see their purchasing power decline, with a government relief package mitigating the blow but falling far short of offsetting it, the institute said.

“The loss of purchasing power, as measured by the decline in real per capita wages this year and next by about 3 per cent each, is higher than at any time since the current system of national accounts was introduced in 1970,” Wollmershaeuser said.

Price increases should gradually weaken over the course of the coming year - calculated under the assumption that there will be enough gas in winter - and energy prices will begin sinking in spring 2023 at the latest, said the institute.

For 2024, the Ifo, part of a group of institutes whose estimates form the basis for the government’s own forecast, predicts economic growth of 1.8% and inflation at 2.5%.

The German economy grew slightly in the second quarter, propped up by household and government spending.

Sweden’s Electrolux on Monday announced plans to cut costs and warned its profit would drop as high inflation and low consumer confidence squeezed demand for its home appliances, while large investments in North America had yet to pay off.

Demand for appliances in Europe and the United States decreased at a significantly accelerated pace in the third quarter, with high retailer inventories and supply chain imbalances increasing costs and inefficiencies, Electrolux said.

“Third quarter earnings for the group are expected to decline significantly compared to the second quarter 2022 also excluding the one-time cost to exit the Russia market,” the group said in a statement.

In the April-june quarter, Electrolux booked a weaker-than-expected operating profit of 560 million Swedish crowns ($53.4 million).

Europe’s biggest home appliances maker said cost cuts across Europe and North America would result in a material positive earnings contribution in 2023.