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COVID-19 a catalyst for US property rates at 1/1: Willis Re

6th January 2021 - Author: Matt Sheehan

Willis Re has reported that COVID-19 was a catalyst for further rate increases at the January 1 reinsurance renewals for US property re/insurers, building on pricing momentum already gained through 2019.

Terms and conditions also tightened, however placements were completed at rates lower than anticipated as capital raises, start-up reinsurers and less punitive retro pricing meant the supply/demand equilibrium remained balanced.

These observations formed part of Willis Re’s 1st View report, which looked at the main takeaways from the recent reinsurance renewals.

For US property re/insurers, the quoting process started early, but due to the divergence in quoting behaviour and buyer expectations ultimately FOTs were delayed until mid-December on most accounts, and in some cases later.

Willis Re also noted that buyers witnessed a wide range of quote deviations across programs, with the greatest differential seen at the top-end of programs due to pressure on minimum rates on line.

Some loss impacted programs saw reinsurers pushing for increases in attachment points particularly when exposed to non-peak perils such as Derecho and Wildfire.

Aggregate capacity was the most complex area of the property market with capacity limited, especially for Hurricane and Wildfire exposed treaties.

Conversely quota shares saw plentiful capacity as reinsurers sought to capitalize on the improvement in the underlying rate environment, especially on Excess and Surplus Lines risks.

Furthermore, US property reinsurers put more emphasis on contract terms, with Communicable Disease (CD) and Silent Cyber being the two areas of greatest focus.

Overall, rates on loss hit property risk in the US market increased by between 5% and 20%, while loss hit catastrophe business increased by between 10% and 25%.

Meanwhile, loss-free property risk increased by between 0% and 15% and loss-free catastrophe risk increased by between 5% and 15%.

In Europe, economics improved across most geographies, but Willis Re noted that reinsurers had hoped for more significant rate uplifts in many cases.

The trend of decelerating pricing became apparent in early December, and the focus of catastrophe renewals ultimately became more focused on exclusionary language than price or capacity, analysts noted.

As 2020 was another year without meaningful natural catastrophe losses in Europe, buyers and reinsurers mainly focused on the momentum of mid-year 2020 rates and the extent to which COVID-19 losses were going to impact catastrophe covers.

Whilst terms by and large as a minimum stopped falling, upwards movement increasingly moderated through the renewal season leaving firm order risk adjusted changes for loss free catastrophe programs on average below 5%.

Smaller and regional programs fared better at 0% to 5%, whilst larger and multi-territorial programs on average renewed with higher increases.

In Asia, buyers saw flat to low single digit risk adjusted rate increases for loss free renewals, while in Australia reinsurers viewed placements holistically and were cautious about offering terms or indicative capacity.

Turning to the Middle East, North Africa & South Africa regions, Willis Re found that pricing adjustments for loss free XLs ranged from flat to 10% and icreases on loss affected XLs were roughly 20%.

Finally, in Latin America there was no shortage of capacity with the majority of programs continuing to be over-placed owing to reinsurers defending their existing shares and, in some cases, even trying to increase them.

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