Global reinsurance giant Swiss Re said it expects insurance industry losses from natural catastrophes to exceed $100 billion again in 2023, leading it to also forecast that Difficult conditions in the non-life market will continue at least until 2024.
Swiss Re, in its institute’s latest sigma report, forecasts that 2023 will be the fourth consecutive year that insured catastrophe losses exceed $100 billion and the sixth year since 2017, on an inflation-adjusted basis.
This comes at a time when property insurance markets are also facing rising claims, driven by higher replacement costs today than two years ago, the reinsurance company said .
He goes on to explain that “although cost pressures from construction materials have generally eased, higher wages and higher financing costs due to tighter monetary policy are keeping construction costs at a lower level. high level. »
Adding that “the global burden of losses from natural disasters also continues to grow, and we estimate the long-term growth rate to be between 5% and 7% in inflation-adjusted terms since 1992.”
Growth in exposure value, driven by ongoing construction in high-risk areas and rising replacement costs, are the most significant factors driving the rise in insured catastrophe losses, explained Swiss Re.
The company further said: “Based on our preliminary estimates, insured losses totaled at least $80 billion during the first nine months of 2023. This figure is higher than the 10-year average of $74 billion. dollars (inflation-adjusted, nine-month period) and without any major peak risk loss events. Losses so far have been caused by violent convective storms in the United States, while devastating earthquakes have added to the toll. With $6 billion in estimated insured losses, the February 2023 earthquake in Turkey and Syria is the costliest insured loss this year so far.
“Year-to-date losses are characterized by a high number of low-single-digit events, some of which represent record levels of loss severity in their countries. »
As we have already reported, Broker Gallagher Re has already estimated that insured catastrophe losses exceeded $100 billion in early November..
As the non-life insurance industry faces challenging claims dynamics, including increasing frequency and severity, while growing liability claims also challenge insurability, l The addition of another year of heavy disaster losses is expected to further heighten tensions.
Swiss Re said “these claims trends imply even more challenging market conditions for commercial and personal insurance at least in 2024.”
Further market hardening is expected in the medium term, as insurers and reinsurers attempt to keep pace with growing exposures and claims.
Difficult market conditions, as well as better returns on investment, are improving the profitability of insurers, notes Swiss Re.
But the reinsurance company nevertheless warns that respecting the cost of capital will remain difficult.
Jérôme Jean Haegeli, Chief Economist of Swiss Re Group, said: “Diminishing economic tailwinds and geopolitical uncertainties reinforce the essential role of the primary insurance sector in risk transfer. Although the sector will continue to strengthen its profitability, mainly through better risk-adjusted pricing as well as higher investment returns, it is not yet expected to reach its cost of capital in 2024 or 2025 in most markets, as economic inflation will continue to have a negative impact on investments. a negative impact on claims costs.
At the same time, Swiss Re says interest rates are currently the largest component of sector returns, suggesting that hardening market prices and improving terms and conditions, while beneficial, are not alone do not drive profitability.
All of this suggests that firm market prices need to be maintained for at least some time, which could provide the impetus needed to maintain a higher baseline of insurance and reinsurance rates, once the cycle begins. to soften again, as will inevitably happen over time.