SI Re sees less retro friction, but still a driver for reinsurance renewals: Salzmann
Signal Iduna Reinsurance Ltd. (SI Re), the Swiss based reinsurer located in the city of Zug, reported that while the reinsurance renewals at January 2024 saw a functioning market, retrocession continues to be a driver of conditions in Europe, even though there was less friction in the retro market this year.
SI Re grew its underwriting portfolio by 2% in premium volume terms at the renewals, which it feels was broadly in line with the overall market ́s expansion.
The company also re-underwrote around 16% of its 3rd party property and casualty business, which SI Re highlights is “in line with its strategic goals of strengthening the resilience of its the existing book of business while expanding into diversifying markets.”
“We are highly satisfied with the outcome of this year’s renewal,” explained Bertrand R. Wollner, Chief Executive Officer of SI Re, “As we continued on our route of enhancing our book’s profitability and reducing its exposure to frequency risks, we further expanded our share in non-proportional covers. We thus maintain greater transparency and control of the risks we underwrite while improving our returns. In addition, we further enhanced our book’s profitability by adjusting our participation in small low-margin programs. While pursuing our goal of achieving economic sustainable margins and volumes, we maintain a cautious approach in the type of business SI Re engages in.”
The reinsurer has shifted much of its focus to higher attachment points for the reinsurance it underwrites, to provide capital protective capacity to its clients, but while reducing its exposures to frequency risks, such as the events that caused many of the recent weather-related catastrophe losses in Europe.
The 3rd party book expanded by 6% in premium terms, but SI Re also acquired 12% in new business, much of it from new clients, to further diversify its portfolio.
Commenting on the market dynamic at the January 2024 reinsurance renewals, Robert Salzmann, Head of Underwriting, ILS markets and Retrocession at SI Re noted that retro capacity availability continues to drive market conditions, to a degree.
Salzmann said that, “We saw a functioning market in this year’s renewal,” adding that, “Still, markets remained disciplined.”
But on retrocession he explained, “Although the friction in the retro-market has eased since its peak in early 2023, participants stick to higher attachment levels and tight terms and conditions.”
Salzmann went on to explain, “This spills to the reinsurers which trim their portfolios to reduce the impact from frequency losses. It further affects the insurers, which need to maintain rate adequacy in the original portfolios to cope with the increased retention levels. For proportional programs, which still present the most common and favored cover to cedants, reinsurers only provided capacity on very strict terms.
“This situation will continue unless the rate level of the original books of business have been improved visibly.”
Which perfectly describes the important role of retrocession and the fact it remains a critical lever for reinsurers, especially so at a time when they have retrenched away from frequency but still have the appetite to underwrite more risk while the market pricing remains hard.
With reinsurance capital close to its all-time high, SI Re said that, “This renewal we saw a functioning market in Europe too. However, the market ́s balance remains fragile.”
The company explained, “On the one side, the market still thrives to limit its exposures. On the other side, the overall available risk capacity still lags behind the rise in inflation. Nevertheless, at this year’s renewal the market was better prepared to handle uncertainties around the impact of inflation and the changing interest rate environment. In addition, over time reinsurers’ investment returns will clearly benefit from the rise in interest rates.”
SI Re also provided some more colour on the European reinsurance renewals, saying that, in France and Germany, the trend towards increased attachment levels and buying more capacity continued.
“Regions like Norway, Sweden and Italy followed suit in the 2024 renewal, as these markets were impacted by heavy weather- related losses in 2023,” the company reported.
Stating, “Being the 4th consecutive year of natural catastrophe losses exceeding the USD 100 billion mark, this ongoing development will eventually require a structural market adaptation to align to this new normal.”
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