“While 1.1 was quite uncertain, 1.4 was much more methodical, market and economic conditions and dynamics didn’t change dramatically, so the process was much more measured,” suggests Gianfranco Lot, Chief Underwriting Officer P&C Reinsurance at Swiss Re.
According to Lot, expectations were better managed for 1.4, as the 1.1 renewal enabled clients to anticipate rate increases, so they were able to prepare and adjust their budgets accordingly. Meanwhile, the use of retrocessions enabled reinsurers to calculate capital supply more accurately while remaining conscious of required returns.
Discussing the outcome of 1.4 in detail, Lot said that pricing momentum as seen in 1.1 continued, as did higher retentions and tighter terms and conditions, with changes in relation to structures and wordings.
This was particularly evident around areas such as infectious diseases, non-damage business interruption and loss occurrence definitions, he explained.
Lot continued, “Japan is by far the biggest market that renewed at 1.4, although there are a smaller number of treaties renewing in India and for several of our international clients. Overall, client and reinsurer expectations were better aligned than at 1 January 2023.
“1.4 is also a significant renewal date for specialty business and I’d like to highlight two observations: In Marine, we still see a need to further clarify war coverages following the outbreak of the Ukraine war in 2022.
“In aviation business, discussions around sideways limitations on proportional treaties have progressed and we see more and more markets subscribing to that approach.”
Commenting on the client response to 1.4, Lot said, “Understandably, there was a need for discussion with clients and brokers, especially in Japan, where reinsurance rates had already been adjusted in the last years.
“However, the global increase in the risk frequency and severity trend of natural catastrophe events had to be considered.
“The South African flood loss that hit KwaZulu-Natal in April 2022 was a point in case. Here, the floods caused widespread devastation. Further, where medical reimbursement covers from COVID-19 had been underestimated by the reinsurance market, a further costing and pricing review was triggered.
“These formed key discussions alongside natural catastrophe risk exposures, which is always a big area of discussion.
“Good progress was achieved in relation to data transparency, which is an issue across the entire re/insurance value chain globally.
“Many clients were able to provide more granular data points than before that enabled our own underwriters to better understand the risks and price them accordingly.”
As to the outlook for 1.7 and the 2023 conference season, Lot commented, “With 1.7 focused on the US and Australia, there’s likely to be more demand. In this sense, I expect a continuation of the current market momentum.”
He added, “Walking into the conference season, I am anticipating discussions around the increasing frequency of natural catastrophe events and secondary perils.
“So far this year, we’ve witnessed earthquakes in Turkey and Syria, tropical cyclone Gabriel, several tornadoes, and floods in New Zealand too. So that seems to be elevated, at least from a first quarter perspective.
“It’s hard to say how that will change but by the half year point, we will have more data points. We also see potential issues in the casualty market. Some of the court verdicts we are seeing are still significant.
“The Swiss Re Institute reported that the median size of large awards rose by 26% for general liability cases and by 32% for vehicle negligence cases over the past 10+ years. This will inform renewal conversations on casualty business.”
Lot concluded, “Looking ahead, we expect conversations to be more about the continuation of momentum on pricing, conditions and reinsurance structures as well as specific topics like cyber, economic inflation and weather-related events.”
