Reinsurance renewals 'very late, complex, gruelling'
The January reinsurance renewals were “very late, complex and in many cases frustrating”, Gallagher Re says in a market report, while Aon says they were the most challenging in a generation.
Gallagher Re Global CEO James Kent says that, as expected, the two areas of most constraint were peak-zone US property catastrophe capacity and coverage for strikes, riots and civil commotion and war.
“In most other lines and regions, buyers have largely been able to source capacity, albeit at a higher cost and in many cases changed structures, with an increase in attachment points and the raising of the ‘floor’ on minimum rates on line, a key focus for many reinsurers,” Mr Kent says.
“The renewal process has been gruelling for participants, many of whom have not faced such a rapid change in market conditions across a single renewal season.”
Aon says insurers’ desire to buy more limit collided with reinsurers’ need to reduce volatility and improve profitability, after a string of poor results since 2017.
The renewals took place against a backdrop of rising inflation, a significant erosion of reinsurer equity driven by precipitous interest rate rises, and limited retrocession availability following losses caused by Hurricane Ian, which made landfall in Florida on September 28.
“The latest reinsurance renewal period was characterised by fundamental shifts in market dynamics as reinsurers reset pricing, attachment points and return expectations, especially for property risk,” Aon Reinsurance Solutions Global Growth Leader Joe Monaghan said.
Guy Carpenter, the reinsurance broking arm of Marsh McLennan says property average price adjustments and increased attachment point movements were substantial across the portfolio.
Some reinsurers reduced or withdrew their capacity last year, but the firm says others are now viewing the market inflection point as an opportunity to increase participation and future outcomes should stabilise as capacity deficiencies moderate.
“Looking past the renewal of January 2023, it’s important to remember that we have been at crossroads before,” Guy Carpenter CEO Dean Klisura says. “In prior reinsurance cycles, significant catastrophe loss events such as Hurricane Andrew, the attacks of September 11, 2001, and Hurricanes Katrina, Rita and Wilma were the catalysts for market corrections that preceded new capital entering the sector.”
Casualty lines, treaty results were highly dependent on prior-year results, underlying rate changes, and overall portfolio performance, with pressure on pricing seen across most lines.
Overall, once market-clearing pricing was determined, capacity was stable across most casualty lines with very little change in terms/conditions, Guy Carpenter says.
