According to Liberty Mutual Re’s Underwriting Manager James Green, December 2021 was one of the toughest property renewal seasons for all territories in a long time, with 2021 losses, and to a certain extent 2020 losses, particularly related to the COVID-19 pandemic, continuing to increase within the industry.
Other events which caused uncertainty this renewal season included reinsurers that either exited the London Market at the last minute or announced reduced capacity, as well as communicating their desire to move away from attrition, particularly aggregate deals.
According to Green, Retro capacity was substantially reduced driven by a combination of trapped capital and genuine risk appetite changes. The retro impact is exaggerated for smaller, less diverse, and capital hungry entities.
“At the same time, macro influences impacted on the placement and pricing of programs, including the impact of climate change, which can really be felt in the low-level attachment layers and the aggregate programs, both of which struggled at renewal,” he said.
He also explained that a broad catch-all which encompasses normal price inflation, which is prevalent across the world, social inflation, post-loss inflation, supply chain inflation. All of which make reinsurers nervous when assessing exposures and potential losses.
Reinsurers continued to differentiate between clients, which covers many different angles other than price.
For example, loss experience, claims performance, management strength, business strategy, and the depth of the client relationship.
“Whilst insurers have been enjoying profitability in recent years, reinsurers have been heavily impacted by losses. Profitability has, therefore, been eroded creating tension at capital provider level,” Green said.
How did it all end up? Once these hurdles were successfully negotiated, programmes did not struggle to get placed, which demonstrated that, unlike the very challenging renewal seasons during the early 90s and post-9/11, capacity was sufficient to satisfy demand.
The temptation to compare renewal seasons with those of the past, particularly the hard market of the 1990s, is difficult to do as there are fundamental differences; the late 80s and late 90s witnessed a period of severe losses that impacted multiple lines of business.
At the same time, a tidal wave of long-tail losses washed up on balance sheets. Also, carriers lacked the benefit of cat modelling tools, so risk assessment was very challenging!
“In terms of hard facts on rate changes for the renewal season, this is not the forum for that as every entity measures rate changes in a different way. Subjectivity abounds. However, I am sure all parties would agree that rate changes for 1 January renewals were positive for a robust reinsurance market,” he concluded.
