Reinsurance renewal rates fluctuated widely at Jan.1 renewals, with catastrophe losses and a constrained retrocessional reinsurance market driving property rates higher while casualty rates rose inside a narrower range.
Concerns over inflation factored into reinsurers' decisions, and cyber risks were difficult placements, brokers and underwriters said.
“We've had to remain very selective,” said Wilton, Connecticut-based Christopher Buse, chief underwriting officer, reinsurance, The united states, at Axa XL, a unit of Axa SA. “The economics continue to be tough. Underlying pricing is up, but interest rates are low and inflation is very high.”
“This was not a straightforward renewal,” said Mike Van Slooten, head of business intelligence for Aon PLC's reinsurance solutions division in London. “It's very hard to draw just one data explain of the items just happened. There's a huge variation of outcomes.”
The disparity in quotes and views by reinsurers was “far wider than we have seen in prior years,” said David Priebe, Norwalk, Connecticut-based chairman of Guy Carpenter & Co. LLC.
The Guy Carpenter global property catastrophe rate-on-line index increased 10.8% year-over-year. In property reinsurance markets, business not hit by catastrophe losses was generally flat to up 7%, with loss-affected business up 10% to more than 30%, the reinsurance broker said inside a report issued last week.
Property reinsurance renewal rate increases varied from the low to high double digits while casualty rates ranged from flat to 20% higher, Gallagher Re, one of Arthur J. Gallagher & Co., said in another report issued a week ago.
“Reinsurers signaled fairly early that they needed more price and could be offering less capacity in some areas, but there is still some initial sticker shock from clients in property particularly,” said Nick Durant, New York-based CEO of North America for Lockton Re, one of Lockton Cos. LLC. “You would need to return to Jan. 1, 2002, to keep in mind a renewal where there were such extreme views positive or negative about a lot of lines of economic.
In the U.S., storm losses, including Hurricane Ida, wildfires and winter storms, hit the insurance market.
European weather events, including heavy flooding in Germany in July and Swiss hailstorms in June and July, caused substantial losses and drove reinsurance pricing higher in loss-affected areas, causing spikes of more than 50% in markets that had been stable for a long time.
“End outcome was very mixed by client, by class, by territory. There have been several flat renewals and in some emerging markets the odd rate reduction,” said James Vickers, chairman international, reinsurance, at Gallagher Re working in london.
Pricing at Jan. 1 European renewals “did exercise significantly relative to prior years,” Mr. Priebe said, driven in part by large property losses. Pricing within the U.S did not progress nearly as much as in Europe, where the market have been flat within the last Ten years, he explained.
In property catastrophe markets, reinsurers desired to move away from frequent low-level loss covers simply because they haven't performed well and “that's the region in which the issue around secondary perils and claims has been happening,” Mr. Vickers said. “We've seen lots of small and medium-sized claims and that is driving reinsurers to try and position somewhat higher up. Low-level and aggregate covers were very difficult to place.”
Non-catastrophe casualty coverages, for example directors and officers liability coverage and financial lines, where rates have been “moving like a rocket,” are noticed as very attractive for reinsurers, he explained.
“In an industry such as this, you've got a large amount of programs which have been restructured. It's not as if you had the same contracts being renewed with no changes from year to year,” Mr. Van Slooten said.
Other factors
Inflation is starting to affect reinsurers' thinking for the first time in a long time, said Mr. Priebe of Guy Carpenter.
There was “a lot of discussion” over how inflation had been addressed in underlying primary portfolios, he said.
When determining pricing, reinsurers must consider to what extent inflation will offset increases, said Mr. Buse of Axa XL.
Property rebuilding costs have risen because of spiking material prices and labor shortages, Mr. Van Slooten said. “Post-loss rebuilding costs go up quite significantly,” plus some reinsurers have “baked” this factor into their pricing. In addition, economic inflation is creating uncertainty over pricing and reserve adequacy, he said.
Cyber reinsurance remains challenging, Mr. Buse said. “Rates are up enormously because losses are up enormously,” he explained. Requirements for explicit cover or exclusion of silent cyber are widespread, particularly in Lloyd's based in london, Mr. Buse said.
“Getting coverage on an aggregate basis for cyber was increasingly challenging,” Mr. Priebe said.
Retrocessional coverage
The retrocessional reinsurance market, which backstops reinsurers and it has been increasingly dependent on capital markets recently, was the area of the market that saw probably the most capacity withdrawn, Mr. Priebe said. “Capital supporting aggregate covers in the retro market decreased quite significantly,” he said.
Catastrophe bonds have performed extremely well, said Mr. Vickers of Gallagher Re. But collateralized indemnity retrocessional coverage “struggled because that product has performed poorly within the last 3 to 4 years,” he explained. The resulting decrease in indemnity coverage pinched capacity in the retrocessional market.
Aon's Mr. Van Slooten said the record degree of catastrophe bond placement was driven by rising reinsurance pricing. “Record cat bond issuance tells you about the state from the reinsurance market. One reason cat bonds proved very popular is the fact that traditional reinsurance pricing is rising,” he said.
Lockton Re's Mr. Durant sees the tougher pricing extending into 2022 midyear renewals.
“All eyes is going to be on Florida along with other mid-year placements to ascertain if reinsurers continue to push price increases,” he explained. “Buyers continue to push price on the original business but will look for further reinsurance capacity to come back to the marketplace and hoping that 2022's number of severe events is not repeated in the meantime.”
