Various leading brokers at the reinsurance Rendezvous insist that the industry must embrace volatility and ‘scale up’ to meet the opportunity that climate change, the widening protection gap, and the increasing demand for risk transfer of cyber and intellectual property exposures will require in the longer term, says Peel Hunt.
The report notes that reinsurers need to provide better transparency around price and the structure of the reinsurance solutions that are being offered in the market. This, the brokers affirmed, should allow them to meet demand and absorb volatility comfortably.
The report adds that brokers widely suggest that demand for reinsurance cover will rise next year as cedents look to expand their cover.
It writes, “The premium to available capital ratio across the sector has risen from 80% only a few years ago to 130%, as available capital has gradually slipped due to lacklustre returns and bond values declining in a rising interest rate environment.”
“As such, brokers believe traditional capital is unlikely to increase exposure to property catastrophe classes and ILS capital is unlikely to top this up.”
Peel Hunt suggests that the reinsurance sector’s enthusiasm for offering whole account quota share cover and moving away from writing property catastrophe risks is driven by the primary market’s efficiency and achieved rate adequacy.
However, it notes that one broker affirmed that reinsurers cannot unilaterally reduce their exposures to the lower or working layers of property catastrophe programs if they still wish to participate on the most attractive reinsurance panels.
The report adds, “A quid pro quo still exists, and reinsurers will need to take some attritional risk. Hence, whilst attachment points are increasing, brokers do not expect to see a major shift at the end of the day, and reinsurers will likely ‘stick around’ once the January renewal deals start to get done.”
The main question for the January renewals is what Europe will do following a 1H22 of significant losses on the Continent, says Peel Hunt.
The report states, “One broker expects January rates to go up 5-15%, which would still not be enough to deliver full rate adequacy across property catastrophe classes. The same broker suggests we are 2-3 years away from the peak in the property reinsurance cycle and that rates across the property catastrophe reinsurance continue to rise.”
It concludes that it’s still unclear whether cedents will want to close renewals early upon seeing a hard market emerge, or wait until late in the renewal cycle to see if reinsurers bend on either price or cover.