Reinsurance supply to outstrip demand at some return periods: Gulbransen, Howden Tiger
Reinsurance capital supply is set to outstrip demand at certain return periods, according to Howden Tiger’s Head of North America Reinsurance, Wade Gulbransen, who explained that, as a result, the broker is asking clients and markets to look at how frequency cat loss issues can be addressed.
Speaking during a Howden Tiger update on re/insurer results and the outlook to 2024, the Head of North America at the reinsurance broker explained some of the challenges ceding clients have been facing.
On the upcoming January 2024 renewals, Gulbransen said that, “I do believe it’s going to be more orderly.”
But he stressed the need for clients to communicate clearly and frequently, particularly about changes to their portfolios, saying that, in the market we see today, “assumptions can have a massive impact on the costing of risk.”
“It’s incredibly important for clients to communicate what they’re seeing and what reinsurers should be using as part of how they underwrite and cost the risk,” he explained.
In addition, he said that clients need to communicate their specific needs clearly as well, especially about the challenges clients are facing with catastrophe loss retention, given the higher attachment points and tighter terms reinsurance has been bound at through 2023.
“A lot of those losses are retained net and, because of that, clients are feeling the pain and the challenges of net retained losses,” Gulbransen explained, which he says also means that clients need to seek out options at this reinsurance renewals.
“We believe that the supply will outstrip demand, in terms of cat capacity excess of the 1-in-15 year return time-ish,” Gulbransen said.
Going on to say, “As a result of that, we’re asking our clients and markets to provide some critical thinking around, how do they address some of the frequency of cat losses that our clients have had to retain net, in a very challenging market.”
This again speaks to the reinsurance protection gaps we have been describing, as cedents have found themselves retaining much more volatility and lower-down loss exposure, while frequency losses are in many cases unprotected against.
The reinsurance and retrocession market seems much more focused on walking back towards catastrophe risk at this renewal, albeit in a more controlled and sustainable manner.
Brokers like Howden Tiger are increasingly talking about the opportunity to provide capital to narrow some of these emergent reinsurance protection gaps and Gulbransen is absolutely right that critical thinking is needed, to design products that can help to absorb at least some of the volatility and frequency exposure.
Gulbransen went on to say that, his last piece of advice for cedents at this renewals is, “Be patient. But, if you’ve secured the coverage and limit that you’re seeking, bind it up.
“There are different schools of thought, should you wait, should you wait to see how the market unfolds. We continue to be in a very volatile world, in my opinion and so there are many factors that could have an impact on the market supply.
“But if you find the coverage and the pricing that meets your hurdles, I would suggest binding that coverage up.”
Gulbransen also discussed US market pricing and said that for the admitted market, he anticipates more price increases through 2024 and into 2025, while regions like Florida are likely to see rates still outpacing other areas of the country.
“In short, we do see the market continuing with price and coverage and it will vary by market and by segment, but we do see it continuing into the 2024 calendar year,” Gulbransen said.
However, positively, and reflecting the more stable renewal marketplace that is anticipated in reinsurance, Gulbransen also said that Howden Tiger does not expect dramatic changes with reinsurance panels, saying that much of that shift has already occurred and that now, “I would argue that we’re probably more on the maturity part of the curve.”
Read all of our reinsurance renewals coverage here.
