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1:1 Renewal season to see a tightening marketplace: Willis Re

11th November 2020 - Author: Katie Baker

Willis Re recently held a webinar in which Paddy Jago, Global Chair of Willis Re and Tony Melia, Chief Executive Officer of Willis Re International discussed the upcoming January renewal season and how things in the reinsurance market may develop.

willis-re-logoJago commented: “We will experience further gradual firming from where we were at January last year, and further differentiation of clients by reinsurers. We will also see differentiation of reinsurers by clients, reflecting a flight to quality.

“Given that available capacity is adequate and programmes can be completed, sensible clients will look at their list of reinsurers and identify the very best. That creates opportunity for the better-capitalised, more secure, more intelligent, long-term, and sustainable reinsurers to further cement their relationships with a greater number of core clients.”

Melia also discussed how Willis Re was looking at the potential for a tighter market with a higher demand for reinsurance.

He commented: “We are looking at a tightening marketplace with modest remedial action applied in segments and geographies where losses have been minimal or absent. Had losses occurred and 1.1 is still a long way off, the reinsurers’ response would no doubt be a lot tougher. Those trends, with the same caveat, are likely to continue through April and mid-year 2021.

“One thing is clear: cedants in general are buying more reinsurance. In times of uncertainty, people tend to become more risk averse. Covid-19 has shown insurers that significant correlations exist between the asset and liability sides of their balance sheets, which they may or may not have considered or modelled extensively in the past.”

It was also discussed that insurance-company decision makers have noticed a significant asset impact occurred at the same time as huge potential insurance losses were acknowledged due to Covid-19. This has resulted in them being less confident about overall financial performance, and therefore are looking at the liability side of risk mitigation.

He continued: “All sorts of insurers, from the smallest to the very largest, have been reviewing their retentions and risk management strategies, and almost all have or will be buying more cover. Some are buying more aggregate excess of loss to protect against unforeseen frequencies at the tail, and some are buying lower on per-event and per-risk covers that protect against middle-sized losses. We’ve also seen quite a lot of interest in capital-releasing reinsurances, whether retrospective or prospective.

“Another factor is driving increased buying. In general, insurance companies’ relationships with their investors are somewhat fraught. They are under pressure, and few appear keen  to begin any capital-raising initiatives. Instead they are looking into ways to gain greater capital efficiency, and to monetise capital to release funds either to write new risks, or to push money back to shareholders (when regulators again favour this, at least). Retrospective covers are quite attractive to do that.”

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