Understanding the new hard reinsurance market

Leading up to January 2023, reinsurance entered a ‘hard market’, a term that describes significant price rises. In this article, we explain the If perspective on the new normal in the reinsurance market, what has changed over the previous year, the challenges today, and the implications for the market in the short to medium term.

Reinsurance is an instrument for insurance companies like If to transfer or share some of the risks. By purchasing reinsurance, If is able to spread out the risk across multiple companies and reduce the potential financial impact of very large individual claims or of many claims arising from its clients at the same time, for example following a flood. Reinsurers select the risks they want in their books and therefore they have a critical role to play in deciding what can be insured and at what price. 

Erik Nordblom.
Erik Nordblom, Head of Reinsurance

January 1 is the key renewal date for most reinsurance agreements, and at the end of 2022, renewal negotiations took on an intensity not seen in decades, as reinsurance companies demanded significant price increases, thereby eroding many years of price decreases in the market in one go. 

This rapid changing of the market dynamic has led to insurance companies raising premiums and reducing risk appetite. A hard reinsurance market can therefore be summarised as a general market condition where the availability of reinsurance coverage is limited, and the cost of that coverage is high. Several factors have resulted in the new normal standard including an increase in natural disasters, exposure to Russia’s war in Ukraine, increasing inflation, supply chain shortages and an overall greater demand for reinsurance, as well as a decrease in available reinsurance capacity. 

“Reinsurance sets the framework for what the market allows insurers to do. If Insurance, like all other significant insurers, has large and complex risks that are dependent on the support of the global reinsurance market. Regardless of what happens just in the Nordics, we are, per definition, affected by all the increasing claims that we have seen globally due to significant fires and weather-related events,” says Erik Nordblom, Head of Reinsurance at If P&C.  

A shock to the global system

As an insurance company, If is always impacted by changes in the risk landscape, such as external geopolitical events, climate events, natural disasters, inflation and logistics shocks, as well as significant changes in war, energy and pension insurance.

Geopolitical events can lead to the current ‘polycrisis’ – a cluster of related global risks where the overall impact exceeds the sum of the parts – seen in the last 12 months, and can create volatility in the whole reinsurance market.


“I think the reinsurance market is now fundamentally different in the sense that the reinsurers have finally had a chance to do what they have wanted to do for multiple years, and that is catch up on severely inadequate premium levels. There was a long stretch of time where a new supply of capital entered the reinsurance market and the fundamentals of supply and demand meant that it became artificially cheap. 

But the situation has changed, and the reinsurance market now needs to price themselves more adequately. Now that there are higher returns to be made in the fixed income market due to increased interest rates, then reinsurance is no longer so attractive for investors, as it's increasingly volatile, and the profits have been poor in recent years. Significant amounts of capital move to safer and better paying investments, and with less capital and thereby less capacity available, prices go up. It's a very simple supply and demand equation”, Nordblom explains.

Now more than ever, it's important that you have your long-term partners that believe in you.

Erik Nordblom

“We are that partner to our customers, and we have such partners in the reinsurance market and that's something that's very important for us. With stable owners and strong reinsurance muscles behind us, If is a stable insurer for our customers throughout these increasingly volatile times.” 

A greater focus on risk management

It is clear to If that in this period of increased geopolitical and climate-related disruption and inflationary pressure, amongst many other variables, our customers can never slow down their work on managing risks and preventing losses. “When things get difficult, it gets the most difficult for the most difficult risks” states Nordblom. In a soft market where there is insurance capacity for everyone, you can insure anything, but when things get difficult, those companies who are not giving enough focus on their risk management are going to be weeded out. If companies are going to find insurance and reinsurance on reasonable terms, it is becoming evident that they need to be among the best in the class. Now more than ever, working with risk prevention pays off.  

The new normal

The hard market requires that risks are comprehensively explained - both in words and numbers. To that end, no insurance or reinsurance company is now taking on unknown risks.  Information and transparency are still considered king and a catalyst for establishing trust – all the way through the chain from company, to insurer, to reinsurer.  

After adjusting for growth and inflation, essentially everything in the property risk and catastrophe space in early 2023 has increased by around 20-40% in the Nordic market. This is due to the new landscape being uncertain and characterised by increasing deglobalisation, the statistical likelihood of more frequent, and more destructive climate-related natural disasters, rising interest rates, greater recessionary risk, structurally higher inflation, supply constraints, and more.  

Nordblom concludes that “it’s important that companies feel safe with us, but it comes for those willing to work with their risk management together with us. For the next few years, there’s not going to be an easy ride for anyone. We stand strong as we show our reinsurers that we rest on the strong fundamentals of technical underwriting and risk management. We have the capacities, the competence, the ability and the willingness and we have been consistent in our underwriting and how we do business. And that has enabled us to grow with our Nordic base, and our reinsurers believe in what we're doing, and they are still happy to support us, albeit with higher prices than before.” 

Written by

Dan Rider