Reinsurance price increases fell short of a hard market during January renewals, say analysts from S&P Global Ratings.

In a report released today, the ratings agency said reinsurers were “left wanting more”, but that expectations for rate rises remain high for the rest of the year.

“Overall property and casualty reinsurance pricing has been increasing during the last 24 months and through this year’s January renewals, indicating a firming market and not a hard one,” states the report.

“Rate increases were lower than what reinsurers had hoped for. The prevailing market sentiment is that it is a US primary-driven hard market, not a reinsurance one.

“Reinsurance has reacted to multiyear above-average natural catastrophes, low interest rates, Covid-19-related losses, alternative capital influence, and aggregate cover and retrocession capacity constraints with tightening terms and conditions.”

A Willis Re report, cited by S&P, found that US excess-of-loss property and casualty loss-affected reinsurance policies were up 5 per cent to 30 per cent, varying by line of business.

The S&P report, authored by analysts Taoufik Gharib, Johannes Bender and Hardeep Manku, also found that reinsurers had sought to tighten terms and conditions, especially for communicable disease and cyber-risk exclusions.

In short-tail lines, communicable diseases exclusions were more broadly accepted than in long-tail lines. “As reinsurers pushed to improve terms and conditions, cedents responded by retaining more of their risk, because many of them believed that the primary insurance risk may have reached rate adequacy,” the report stated.

The ratings agency estimates the top 20 global reinsurers incurred about $15.5 billion of losses related to Covid-19 in 2020. With some fourth-quarter earnings still to be reported, S&P believes the global reinsurance industry will swing to an underwriting loss for the year.

The report speaks of a short-term overhang for the sector, which is facing uncertainty over the extent of pandemic-related claims, emphasised by the latest legal rulings on business interruption coverage in Britain and South Africa.

“Therefore, higher technical underwriting margins are greatly needed to make up for the shortfall in investment income, elevated natural catastrophe losses and additional pandemic claims, which we believe collectively will carry the positive reinsurance pricing momentum throughout 2021,” the report added.

However, the analysts said global reinsurance sector capitalisation remains “robust with no material capital destruction”, having benefited from capital raises in 2020 and the market recovery.

An expected capacity shortage in the property catastrophe retrocession segment did not fully materialise, the analysts said. They added: “Despite significant rate increases and overall constrained capacity, buyers were able to purchase protection through record issuance of catastrophe bonds and from certain traditional reinsurers, who were willing to provide coverage because of improving pricing.

S&P is maintaining its negative outlook for the global reinsurance sector.