Gallagher Re, the global reinsurance broker, has released its latest 1st View renewals report, highlighting the trends and dynamics at the July 1 reinsurance renewals, which indicates a continuation of pricing and structural dynamics similar to those observed during the January 1 and April 1 renewal periods.
Despite significant year-on-year increases, the renewal process was relatively orderly and rational, with sufficient capacity available from the reinsurance market to meet client needs, the report noted.
This was attributed to the entry of new capital, both traditional and from insurance-linked securities (ILS), along with moderated demand due to increased retentions and limited additional limit purchases. Clear expectation management by all parties also contributed to a smoother renewal process.
The casualty treaty market remained straightforward, with adequate capacity and flat to moderate rate increases. Reinsurers expressed confidence in the improvements made to underlying portfolios, influencing the rate changes in this sector.
One notable development is the growing interest of investors in ILS funds, driven by strong returns achieved so far in 2023. As a result, there has been an increase in the issuance of bonds overall. Additionally, the focus of ILS attention has shifted from traditional property perils to other opportunities, such as cyber and casualty, as the property market moves towards balance.
The report also indicates a consolidation trend within the reinsurance industry, with limited signs of new reinsurance entities forming. Instead, existing reinsurers are leaning into the hardening market, committing more of their existing and newly raised capital. This consolidation trend, combined with the absence of major losses, points towards pricing stability in the market.
Tom Wakefield, Global CEO of Gallagher Re, commented on the improved terms and conditions available in the reinsurance market. He highlighted that existing reinsurers are capitalising on these favourable conditions, while new reinsurance entities are not emerging significantly. Wakefield emphasised that pricing stability is expected due to the consolidation trend and absence of major losses in recent times.
Reinsurers implemented structural changes, shifting from surplus to quota shares and increasing retentions for excess-of-loss programs. While some buyers found it easier to secure favourable pricing, others struggled to settle on firm order terms due to varied quotes from reinsurers on property treaties.
However, even challenging renewals found capacity privately in advance at acceptable terms, avoiding distressed shortfalls.
The retrocession market saw an improvement in capacity availability on an occurrence basis, although the associated costs remained significant and unattractive to many buyers.
Casualty placements were generally straightforward, with adequate capacity and flat to moderate rate increases. Reinsurers were comfortable with improvements made by buyers in underlying primary policies, although there were signs of softening in some professional line classes.
The COVID-19 pandemic and rising inflation have complicated the landscape, while increased reinvestment rates have improved the economics of long tail business in most economies.
ILS funds attracted new investments, particularly in more liquid catastrophe bond strategies, due to their strong returns in 2023. This increased investor interest, leading to a rise in new bond issuances and attention towards ILS opportunities in cyber and casualty as the property market aligns.
Existing reinsurers are capitalising on the favourable terms and conditions in the reinsurance market, committing more of their existing and newly raised capital.
However, unlike previous hard markets, there are limited signs of new reinsurance entities forming, indicating a trend of consolidation into larger entities, pointing towards pricing stability in the absence of major losses.