Life has not been easy for reinsurers in the past few years. Claims for natural catastrophes and pandemic-related losses have wiped out a large part of their profits.

But the latest set of global problems — war in Ukraine, galloping inflation and the ever-increasing risks of climate change — have jolted them into action. In some areas, they are putting up the price of coverage, in others they are retreating altogether.

“What looked like . . . a gradual change is increasingly looking like a knee-jerk change,” said Stephen Catlin, an industry veteran and chief executive of insurer Convex.

Reinsurers play a vital role in trade and the global economy, offering insurance to insurers to reduce the risk that a big claim will wipe them out. This backstop against a whole range of financial risks — which is underpinned by $700bn in capital — gives insurers the confidence to provide cover to a much wider market.

Among the biggest reinsurance groups are the four major European players, Munich Re, Swiss Re, Hannover Re and Scor, as well as the Lloyd’s of London market and Warren Buffett’s Berkshire Hathaway.

Swiss Re’s chief executive Christian Mumenthaler told the Financial Times that “timid” price rises in natural catastrophe reinsurance in recent years had now accelerated after three years of higher costs from losses.

For contracts renewing in July, Swiss Re implemented a 12 per cent rise in premiums across its property and casualty business, which includes natural catastrophe cover and other types of insurance. “It’s very big, because it’s [across] everything . . . I can’t remember a rise like that,” said Mumenthaler.

Executives attribute the market tightening to robust demand — fuelled by inflation driving up the value of what is being insured — and a fall in supply after investor pressure caused some reinsurers to pull back, in particular from the natural catastrophe business.

There has also been reduced appetite, they say, from institutional investors to take on reinsurance risks through insurance-linked securities, partly after losses on these sorts of investments and partly because yields on bonds have increased.

“We think the [reinsurance] market is turning, we are now seeing momentum,” said Aki Hussain, chief executive of Hiscox, one of the biggest insurers on the London market, which has its own reinsurance unit.

“In the past five years [reinsurance] prices have lagged and now for the first time they are going up faster than they are for insurance.”

Another factor in rising prices today is big claims arising from Russia’s invasion of Ukraine. Insurers in areas such as aviation now expect billions of dollars of claims from the owners of the hundreds of planes left stranded by the war.

Reinsurers reducing capacity can create what is called a “hard market”, where demand substantially outstrips supply and prices surge.

Some executives are saying that those conditions are now present, citing recent exits by some reinsurers from the natural catastrophe business. Big Ukraine-related losses could persuade more providers to cut their exposure.

After years of volatility and growing claims, New York-listed reinsurer Axis Capital declared in June that it was getting out of the property reinsurance business, which includes natural catastrophe cover. Chief executive Albert Benchimol said the “significant and increasing effects of climate change and the challenges faced by the catastrophe reinsurance market” had forced its hand.

A month earlier, France’s Scor said it was on track to reduce its exposure to natural catastrophes by 15 per cent, while Axa said its reinsurance unit had cut its natural catastrophe exposure by 40 per cent at the start of the year.

Executives and brokers attribute some of these moves to investor pressure on reinsurers. “Investors have said we don’t want more catastrophe risk,” said Rod Fox, co-founder of reinsurance broker TigerRisk. “That has trickled down.”

Many see 2022 as a turning point. In recent years, an “abundance” of property catastrophe reinsurance outstripped demand and held down rates, said Lara Mowery, global head of distribution at reinsurance broker Guy Carpenter.

“Over the past five years elevated catastrophe losses resulted in poor underwriting results, which have now contributed to a reduction in the supply of reinsurance capacity,” she added. This, plus increased demand, has made it easier for reinsurers to push up prices, Mowery said.

A sign that things are changing came in June, a busy time for renewals of property catastrophe reinsurance policies focused on the Florida market. A lack of capacity was one factor that drove the cost of reinsurance up by 20 to 30 per cent on average, according to TigerRisk.

Broker Aon said in a report on policy renewals in June and July, that years of “above-average” natural catastrophe claims had reduced reinsurers’ appetite for taking catastrophe risk.

“For the first time since the US hurricanes of 2004 and 2005, property natural catastrophe capacity contracted materially, and some reinsurers would not write certain risks . . . at any price,” it said.

Those seeking reinsurance in speciality areas such as aviation and marine also had to contend with the “most challenging renewal in a generation, reflecting the potential for large losses from the Russia-Ukraine conflict”, Aon added.

Joe Monaghan, a senior executive in its reinsurance broking division, said the reinsurance sector “may be fast approaching a true hard market”.

The next key renewal season on January 1 — known as 1/1 — is being viewed as a litmus test of the market. A rush to reprice insurance and reinsurance for risks such as war and political violence is already under way, said several industry executives.

While some reinsurers step back, others may seek to fill the gap. At a recent investor event, Munich Re said it was prepared to take advantage of rising prices by writing more reinsurance business, according to a person familiar with the discussions.

Still, much of the industry predicts reinsurance cover will become more expensive and harder to find.

Going through the year, primary insurers will “realise they are going to have to run more risk, buy less reinsurance and it is going to be much more expensive”, said Catlin. “The [primary] market will be looking at life very differently at 1/1 than it does today.”

The natural conclusion would be that the cost of insurance, which has already been rising for years in some markets, has still further to climb.

Jérôme Haegeli, group chief economist at Swiss Re’s research arm, agreed that rising reinsurance prices are likely to be passed on: “I would expect a knock-on effect.”