Swiss Re estimates that the US alone has approximately $200 billion in demand for catastrophe (cat) reinsurance, and with climate change, demographic shifts, and inflation expected to persist, there is projected to be a 10-15% increase in demand between 2023 and 2024.
While inflation is projected to moderate, it is expected to remain elevated for the foreseeable future, further driving the need for cat reinsurance, the reinsurer noted.
However, until consistent returns are demonstrated that outweigh the riskiness of the business and outperform other asset classes, investor confidence is unlikely to fully recover.
Swiss Re has observed the emerging demand for cat reinsurance from personal lines insurers as insured asset valuations are adjusted to reflect the true rate of inflation.
Additionally, significant revaluation is anticipated from commercial lines carriers, generating fresh demand for reinsurance. The reinsurer expects the industry to adopt a more disciplined approach by addressing under-declared assets or delayed adjustments in insurance-to-value (ITV) calculations, and refining re/insurance contracts through average or margin clauses and other contractual instruments.
The recent inflationary spike and a soft market environment have compromised the industry’s discipline in dealing with such factors within contract wordings, Swiss Re said.
Swiss Re emphasises that accurately reporting the value of exposures is crucial to avoid underperformance against expectations. Failure to do so will continue to limit capital appetite, potentially prolonging the persisting hard market conditions until these dynamics stabilise.
Mike Mitchell, Senior Underwriting Advisor for Property & Casualty Reinsurance at Swiss Re, acknowledged the ongoing journey towards a new equilibrium between capacity demand and supply in the property cat market. “On the way to a new equilibrium between capacity demand and supply but still a long way to go.”
