Reinsurance prices are expected to rise by at least 5 percent next year as the fallout from the coronavirus pandemic, more volatile natural catastrophe losses and capacity constraints take a toll on reinsurer profitability, an annual survey by Moody’s finds.

Over 90 percent of the property and casualty reinsurance buyers who participated in the survey expect price increases in 2021 across all lines, with none of respondents anticipating a price decrease. By comparison, less than 50% of respondents expected price rises last year, while some had thought prices would fall.

Around 40% of buyers say reinsurance prices had been too low in recent years, thus the need for the prices to rise to compensate for growing risks.  The deteriorating risk environment has also made reinsurers' financial strength and reputation a more important consideration for some cedants, according to the survey.

“Some respondents commented that price increases could move even higher next year if financial market conditions deteriorated in the second half of 2020, or if this year's US hurricane and wildfire seasons result in higher than expected losses,” Brandan Holmes, a vice president and senior credit officer at Moody’s, said in a statement.

Price increases this year are expected to be strongest for catastrophe-exposed property reinsurance, reflecting rising capacity constraints, with over 80% of buyers predicting prices to rise by more than 5% across most lines, compared with just 16% last year. Price increases in loss affected lines will be higher.

Rising natural catastrophe risk drives demand for property cover. The vast majority of respondents expect the risk of natural catastrophe losses to rise over the next three years, driven by shifting weather patterns and climate change; a number of cedants plan to purchase more reinsurance as a result.

While some buyers expect to purchase more reinsurance in 2021, the increase will be smaller than in the last two years, as higher prices dampen demand. The majority of buyers expect loss cost trends on casualty business to continue rising, although the responses suggest that demand for casualty reinsurance will remain steady, after increasing over the past two years.

The deteriorating risk environment has made reinsurers' financial strength and reputation a more important consideration for some buyers, with these attributes increasing in importance over past years. Some of the larger insurers in the survey also name bespoke services and support for new product offerings as key features of their core reinsurers.