Property Insurers’ Ratings Under Pressure as Risk Rises, Morningstar Says
The credit ratings of global property insurers are coming under pressure as rising reinsurance costs force them to cut back on cover and retain more risks themselves, DBRS Morningstar analysts said in a research note on Wednesday.
Global reinsurance prices were up 27% in January compared to a year earlier, marking the sixth straight year of increases, Morningstar said, citing preliminary data from U.S. risk and reinsurance group Guy Carpenter.
It was the biggest annual increase since 2006, when prices rose in the aftermath of hurricanes Katrina, Rita and Wilma, the brokerage continued.
“We expect the tougher reinsurance market conditions to continue in the short to medium term, putting to the test insurers’ risk management capabilities,” Morningstar said, warning this could adversely affect insurers’ credit ratings.
The brokerage said insurers who maintain optimum reinsurance levels without increasing premiums would see their underwriting profits deteriorate, while those that cut back on reinsurance cover could see more volatile earnings as risks materialize.
Insurers can opt to pay more for the same reinsurance package, or cut costs by restricting new business, withdrawing from certain regions or business lines or adjusting their strategy, such as by cutting costs on more frequent but less severe perils, Morningstar said.
It added the latter option had been the most popular over the last two quarters.
Insurers may also look at alternative ways to raise capital, including the issuance of catastrophe bonds, as prices are expected to keep rising in the short to medium term, it continued.
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