Reinsurance Rates To Harden In The Upcoming Renewals From April 1

Reinsurance rates are expected to see some hardening in their upcoming renewals in April, but individual consumers may not have to directly bear the brunt yet, according to experts.

In the global renewal cycle on January 1, reinsurance rates saw hikes. Reinsurers decided to increase rates globally, due to heavy loss triggered by major catastrophic events such as Covid 19, inflation and ongoing geopolitical uncertainty. The effect is expected to trickle down to India.

"We may see an average of 10-25% hike in reinsurance rates in the upcoming renewal cycle in India," said Ankur Nijhawan, chief executive officer, AXA France Vie – India Reinsurance Branch.

"Corporations may see a higher impact than individuals," said Amit Agarwal, managing director, Howden Insurance Brokers India. "Cyber, bank related liability, crop and fire are some of the segments that are expected to see stress in terms of reinsurance renewal."

Both Nijhawan and Agarwal highlighted the shifting trends of the reinsurance industry.

Agarwal said that the industry's priority is now shifting towards right pricing of risk. There is a clear distinction between 'good risk' and 'bad risk'.

Nijhawan agreed, saying that depending on the past performance of the risk portfolio, good insurers will benefit from better pricing and capacity availability versus high-risk insurers.

Agarwal said that insurers that have been going through bad years in terms of their underwritten portfolio are already experiencing challenges from reinsurers on their current renewals.

"Rates may go as high as 25-30% in their case. That compares to a renewal at flat rates for good insurers with a healthy underwritten portfolio," he said.

"General insurance will be more impacted by reinsurance rate hardening as compared to life insurance," said Agarwal. This is because around 35% of the general insurance portfolio is reinsured versus less than 1% of the total life insurance premiums collected by the industry, he said.

Thus, life insurance policy pricing may not really be impacted.

Even in general insurance, corporations are expected to be more impacted than individuals.

Howden's Agarwal said that both health and motor insurance make up for a large part of the general insurance market and deal with retail. "Insurers are usually wary against making changes in the retail pricing and therefore these policies may not see a premium hike."

He said that cyber is witnessing the maximum stress followed by bank related liability considering the surge in cyber attacks and the recent banking-related debacles.

IRDAI, he said, also recently announced that fire premiums would go up to the extent of 30%. "Institutional customers may therefore see their insurance policy rates go up by 17-30% as the reinsurers may increase rates by 5 to 15%," Agarwal said.

Crop insurance too, as a segment is witnessing extreme stress in renewals owing to uncertainties but companies are exploring different risk-based models for reinsurance.

"Overall, natural calamity related risks are seeing a hardening of 10-25%," Nijhawan said.

Agarwal, noted that even as the overall life reinsurance rates have come off from the abnormal six to eight times surge witnessed during covid, they are still 25-30% higher than pre-covid levels.

While Asia is experiencing overall supply constraints, the outlook towards India is better than the rest of the continent, according to Nijhawan. "Reinsurers are willing to provide capacity to India at the right price and terms."

"They are exploring concepts of higher loss corridors— which is sharing of risk between insurer and reinsurer up to certain financial limits," the CEO said.

Reinsurers are continuing to support proportional and non-proportional treaties where they reinsure a part of the loss, he said. "If the loss of the insurer on the overall reinsured portion were to exceed the agreed expected loss limits, then the reinsurer would call in the insurer to bear part of the exceeded loss."

Good insurers will enjoy better terms and renewal rates, according to Nijhawan.