With reinsurers eager to deploy capacity in various sectors and capital levels high at the important January 1st, 2021 reinsurance renewals, price increases were more moderate than initial expectations, according to Guy Carpenter, the reinsurance broking arm of Marsh.
On the back of a prolonged soft market state, the lower for longer interest rate environment and subsequent pressure on investment returns, coupled with the impacts of the ongoing COVID-19 pandemic, reinsurers were hopeful of some meaningful rate increases at 1/1.
While pricing pressure for loss-impacted programs was significant and pricing for loss-free programs fell in line with expectations, Guy Carpenter notes that overall, rate increases were moderated compared to initial expectations.
According to the broker, this was driven by both abundant capital levels and the willingness of reinsurers to deploy capacity in several sectors.
At year-end 2020, Guy Carpenter estimates that traditional, dedicated reinsurance capital reached $397 billion, representing a slight increase on year-end 2019. The broker highlights a rebound in capital levels from the decline seen at mid-year 2020, but adds that carriers still struggled to produce positive returns on equity as a result of the pandemic and catastrophe losses.
Additionally, dedicated capital also benefited from the formation of newcos and capital raises towards the end of the year as companies looked to shore up their balance sheets and position themselves to take advantage of improving market conditions.
“While there is no doubt that in 2020 the reinsurance market was impacted on multiple fronts by property losses, COVID-19 and continuing strain in the casualty market,” said Lara Mowery, Global Head of Distribution at Guy Carpenter.
“It is a credit to the financial robustness of our marketplace that reinsurers were largely able to navigate through these challenges, respond to changing conditions and define market strategies for management and investors,” she added.
Looking at the Property segment specifically, Guy Carpenter states that pricing generally settled at the lower end of expected increases outside of more constrained segments at the renewals.
Globally, property renewal themes included ample capacity from both established players and new entrants; limited demand remaining stable with a few pockets of increases; risk adjusted pricing on loss-impacted programs increasing mid-single digits to low teens in the U.S., and by low single digits on average in EMEA and APAC; above average global large losses in 2020; and less disruptive COVID-19 loss implications than first feared.
Unsurprisingly, Guy Carpenter states that communicable disease exclusion wording was a key discussion area on every property renewal globally.
Peter Hearn, Chief Executive Officer (CEO) of Guy Carpenter, commented: “2020 has been a year like no other. It has seen our industry take the strain of unparalleled uncertainty in the loss environment and the broader economy, all while working under conditions throughout the year we have never experienced. Yet despite these pressures, the reinsurance sector has performed admirably throughout a lengthy renewal process.”
Turning to casualty, and the broker states that renewals varied widely, depending on loss experience, covered lines and industry classes written.
Globally, casualty renewal themes included ample capacity across the majority of lines; additional pressure on treaty terms & conditions and pricing for some programmes; an improving financial lines segment; increased pricing in cyber; and new or expanded client interest in casualty clash coverage.
At the same time, contract language requirements for casualty placements around pandemic and communicable disease varied by line of business. Guy Carpenter notes that workers compensation, long-term care, casualty clash and casualty programs with particular exposures required the most discussion at the 1/1 reinsurance renewals.
Overall, the broker has described the key Jan 1st renewals as starting early, although a slower and more complicated quoting process, and rigorous contract reviews, resulted in a later than average signing process.
Dean Klisura, President of Guy Carpenter, said: “We are focused first and foremost on client needs and working with our reinsurer partners to achieve the best possible outcomes for clients. We truly believe that the unique challenges our market has endured have served to strengthen the bonds we have throughout this industry as we all respond to this extraordinary period.”