Israel-Hamas War: Reinsurance Renewal Rates May See Double-Digit Hike From January

The Israel-Hamas war is impacting the reinsurance sector, as it expects to witness a surge in renewal premium rates. This is in addition to the rate hikes being witnessed in the natural calamity risk insurance segment due to adverse climate changes and global warming.

"Average reinsurance rates might go up by 15% to 20% and retrocession rates may go up by 20% to 25%, subject to how the war situation further develops," said Rohit Boda, group managing director of the insurance and reinsurance broker, JB Boda Group.

Retrocession refers to reinsuring of a risk to reduce the original reinsurer's risk of loss.

However, claim history will always be a major contributor to the pricing, and terms and conditions, he said.

Prateek Singhal, head of reinsurance at Howden Insurance Brokers India Pvt., told BQ Prime that the increase in rates depends on the line of business and it is sector-specific. "Rates have increased from 7% to 12%, depending on the line of business."

He highlighted certain sectors that are witnessing an increase due to the global war and conflict, he said, "We are witnessing an increase in rates of war and terrorism, the aviation sector (impacted by the delay and change of air path), and energy."

Currently, they are finding it difficult to get capacity, even at increased rates, he said. "The cyber capacity has totally shrunk, whereas the energy market is refusing to cover war under risk factors."

Also, the marine supply chain where cargo vessels pass through war zones will be reworked or examined closely, Boda said.

Singhal said that only proposals for pure property have not witnessed drastic hikes, since they don’t get mixed with the global war and conflict situation.

Reinsurance Rate Hikes Due To Natural Calamities

In addition to war-exposed countries and risks, the natural calamity (nat-cat) segment is likely to see pressure because of global events, Boda said.

"Turkey and Morocco earthquakes, with new shakes being witnessed in the Indian subcontinent, will bring pricing under stress."

Supply-Side Constraints

The supply-side is constrained as there is limited new capacity coming to the market, which is why the ones that are present in the market are witnessing rate hikes, Singhal said.

Boda, too, said that capacity and capital are expected to be under strain. "Cost of capital year-on-year keeps on rising. Investors in the reinsurance fraternity have increased their number of questions before putting any money across. Underwriters and pricing models are being looked at with a more exposure-based analysis rather than experience-based."

Supply shortage may not be a reality, but the price at which the supply of reinsurance capacity will be generated is a question, he said.

Impact On Insurance Industry

Howden's Singhal said that in cases of high exposure such as "acts of God perils"—which are primarily due to adverse climate changes and global warming—there was expectation of exorbitant rate increase, but there are factors countering the steep hike in rates.

"Many incumbents, which are working in conflicting markets, are redeploying their capacity to stable and peaceful zones instead of war-torn, geopolitically volatile regions."

The Indian insurance market, Singhal said, is governed by a treaty—reinsurance that covers a portion of the insurer's book of policies rather than a particular risk asset.

Howden had negotiated their proposals before the Israel and Hamas conflict broke out. So, there was no specific hike. However, "on the facultative side—which refers to the reinsurance purchased by an insurer for a single risk or a defined package of risks—we are witnessing a rate increase of 5% to 7.5% on most of our lines," he said.

Indian insurers are increasing their capacity, and hence, the rates are not increasing very steeply, Singhal said.