Analysis by reinsurance broker Gallagher Re reveals that some catastrophe loss-hit treaties in the U.S. witnessed rate increases of more than 100% at the January 1st, 2023, reinsurance renewals, as Hurricane Ian, other catastrophe and risk losses, inflation, and rising interest rates drove disruption in the market.
Gallagher Re’s 1st View January reinsurance renewals report examines a complex and frustrating renewals, characterised by tense negotiations as sellers of protection restricted capacity and pushed for tough terms and pricing.
In the U.S. specifically, the broker notes a late renewal season with many reinsurers refusing to quote before Thanksgiving, which ultimately meant that firm order terms (FOTs) were not issued until mid-December.
Further, reinsurance companies were not authorising rapidly as they were waiting for revised order terms.
“Some cedants who issued firm orders prior to the market crystalizing in late December needed to provide revised FOTs,” explains Gallagher Re.
Overall, reinsurers were eager to exclude natural perils from risk excess programmes at 1/1, although this stance was moderated during negotiations with many programmes completed on an all-perils basis and others excluding critical catastrophe only.
On catastrophe programmes, reinsurers looked to tighten occurrence definitions, and in certain instances sought to exclude secondary perils and restrict coverage to critical earthquake and hurricane perils only, explains the broker.
On firm order terms, Gallagher Re reports that natural perils were generally accepted, although cedants looking to complete large capacity programmes had to accept some restriction of perils covered.
Ultimately, the reinsurance broker finds that a “wide range of price changes were observed as reinsurers looked to differentiate between geographical scope, peril specific coverages, cedants and loss impacted accounts.”
For risk loss-free treaties in the U.S., Gallagher Re notes price changes of +15% to +25%, with rises of +35% to +150% for risk loss-hit treaties. At the same time, the broker finds that catastrophe loss-free treaties experienced rate increases of +25% to +50%, while catastrophe loss-hit saw rises of +45% to +100%.
These price movements in the property space confirm what many had speculated prior to the renewals, that property reinsurance rates would be on the rise at 1/1 – some significantly – regardless of recent loss experience. However, it’s clear that loss hit programmes experienced the steepest rises at the key January renewals.
“First layers of Risk excess of loss and Cat programmes were particularly challenging to place as reinsurers looked to move up programmes. Accordingly, many cedants increased net positions via co-participations, annual aggregate deductibles, or fixed retention increases,” says Gallagher Re. “While many cedants looked to buy more capacity in response to exposure increases, inflation and perceived loss trend, top layer pricing came under pressure as reinsurers substantially increased their minimum premium requirements in response to their own cost of capital.”
Also in the U.S., the broker reports that cyber, communicable disease, terrorism, strike and riot became frequent points of discussion with reinsurers seeking to restrict coverage.
“Non-concurrent terms have become much more prevalent with some cedants being encouraged to bind authorizations as they come in rather than waiting for programme completion,” concludes Gallagher Re.