Prices rise in challenging reinsurance renewals

Reinsurers have gained further price rises after a challenging January renewal season involving some tense and protracted negotiations, brokers have reported.

Gallagher Re’s First View report says the season has “on balance” delivered another rational outcome, with a wide range of outcomes highly differentiated by client, portfolio and territory.

“Reinsurers have managed to achieve further improvements in pricing to build on the increases of the last 18 months, particularly on accounts ceding losses, but may be wondering if they have over-stressed some long-term client relationships which might create difficulties in the longer term,” Global CEO James Kent says.

Australian property renewals featured increased reinsurer discussion on inflation and the impact on pricing, with continued limited appetite for aggregate and lower layers exposed to frequency losses.

Some buyers increased retentions to mitigate reinsurance spending, but Gallagher Re says there were no material changes to wordings or conditions.

Australian property rates rose 10-25% for catastrophe loss-hit risks and 5-10% for catastrophe loss free.

In casualty, following several quarters of rate increases the Australian renewals featured ongoing but reduced upward pressure.

“For the most part, increases followed underlying exposure growth, however reinsurers continued to seek more meaningful increases on loss affected business,” Gallagher Re says.

“Residual concerns around contagious disease took a backseat to discussions on silent cyber, with buyers offering reinsurers deeper insights into their underwriting approach to all cyber risks.”

Guy Carpenter says market conditions were divided between non-loss and loss impacted programs, with those impacting by loss or presenting greater risk to reinsurers experiencing more protracted and challenging renewals.

The renewal process was later than normal in some sectors including property, lagging up to 14 days behind typical timings for the period.

“The reinsurance market is evaluating a broad spectrum of forces, including climate change, cyber threats, core inflation, social inflation, and the continued evolution of frequency and severity of catastrophe losses,” Chairman David Priebe said.

“While reinsurers reassessed underwriting strategies, resulting in a late and varied price discovery process, outcomes were successful.”

Overall, there was ample capacity in the global property sector to complete programs, with greater market appetite for non-loss-impacted upper layers, Guy Carpenter says.

Capacity was more constrained on lower layers, aggregates, multi-year and per risk, particularly if loss impacted. On the global casualty front, portfolio performance and underlying rate movement were critical factors at renewals.

The Guy Carpenter Reinsurance Composite index is on track to deliver a combined ratio below 100% for last year, and a projected reinsurer return on equity of nearly 10%, despite the projected large loss total rising to more than $US100 billion ($139 billion).

The Guy Carpenter Global Property Catastrophe Rate-on-Line Index increased 10.8%.