Major catastrophe events during the third quarter are likely to fuel reinsurance rate increases next year after recent waning momentum, S&P Global Ratings says.

Property catastrophe rate gains fell short of reinsurer hopes earlier this year and downward pressure started to build in the first half, but recent catastrophes have reminded reinsurers of the need for further strengthening, considering risks from climate change and model limitations, S&P says in a report.

On the casualty side, pricing adequacy also remains a focus.

“We believe sentiment in support of additional rate increases has gained strength through the third quarter, and we expect positive rate momentum to last through 2022,” S&P says.

The global ratings firm maintains a negative outlook on the global reinsurance sector and says the industry won’t earn its cost of capital this year and could struggle to do so next year.

This could be the fifth consecutive year in which the top 21 global reinsurers deplete their annual natural catastrophe budgets and the firms also shoulder close to half of total COVID-19 related insured losses.

In the first half of 2021, mortality losses represented about 77% of the reported pandemic losses by the top 21 reinsurers, while 23% were property and casualty-related claims.

S&P says the bulk of property and casualty reinsurance pandemic losses were booked in the second quarter last year, followed by an uptick in the fourth quarter and small amounts in the first half of this year, but conditions are fluid.

“COVID-19-related industry losses could further develop over the next few quarters, especially in the life reinsurance segment, given highly contagious variants of the virus,” it says.

Reinsurance capital adequacy has remained robust despite elevated catastrophe losses, as the industry has some headwinds.

“The industry still faces secular challenges and competitive market dynamics, remaining fragmented as it battles the commoditisation of its business,” S&P says.

“Once a competitive advantage, capital now is viewed as a relatively cheap commodity because of the influx to the sector from non-traditional sources, sustained by dovish monetary policies.”