Reinsurance property catastrophe rates will likely jump “well over 10%” in the January renewals, with increases next year to be most pronounced in regions worst affected by disasters, including Australia, Florida and France, Fitch Ratings says.

Typically, two-thirds of non-facultative reinsurance business is renewed in January, with a regional focus on Europe, Fitch says in a report. The majority of Australian renewals are at the mid-year.

Fitch forecasts broadly stable underlying profitability for the global reinsurance sector next year, maintaining a neutral fundamental sector outlook as increasing rates and higher reinvestment yields help offset rising claims inflation and lower asset values.

Insured losses of about $US120 billion ($179.7 billion) this year will help support property catastrophe rates, along with the increasing frequency and severity of claims.

Hurricane Ian, which hit Florida with category four strength, is likely to have caused between $US35-55 billion ($52-82 billion) of insured claims, making it one of the costliest ever natural catastrophe events.

Fitch expects reinsurance capacity to be pressured next year, with selective capital inflows from existing or new risk carriers more than offset by partial or total withdrawals by other reinsurance providers, while limited retrocession capacity will put additional upward pressure on rates.

Tighter terms and conditions are expected to include a movement to named perils coverage from all perils, higher retentions and reduced limits.

“Nevertheless, we believe demand for property catastrophe reinsurance during the 2023 renewals season will be broadly met, except for Florida,” Fitch says.

Marine and aviation, which have been affected by the war in Ukraine are likely to see significant rate increases, while motor hull rates will rise in response to high spare parts price inflation. Liability lines will benefit from more capacity directed to that part of the market.

“Claims inflation has yet to be pushed up by social inflation or general inflation but we expect this to change in 2023, with negative implications for underwriting margins and reserves,” Fitch says.

“Underestimating claims inflation for liability lines is one of the most significant risks for reinsurers.”

The global reinsurance combined operating ratio is expected to improve to 94% next year from 98.1% this calendar year, Fitch says.