After recent meetings with insurance and reinsurance company executives, analysts at KBW have highlighted how the late January 1st, 2022, renewals season could be positive.
According to one executive, the late reinsurance renewal season is positive as in general, brokers look to place highest-quality accounts first in order to set the market tone.
But to the extent that discipline shown so far this year persists through the end of December, then qualitatively, says KBW, loss-impacted accounts should have an even harder time trying to complete their programmes than the higher-quality accounts.
“Quantitatively, later signings’ increases should also outpace those signed to date,” say analysts.
The executives KBW met expressed optimism for enduring price rises, with an expectation of significant increases at 1/1 and also through the April and mid-year renewals.
This is supported by loss cost inflation, COVID-19 and casualty loss uncertainty, as well as cyber losses and elevated catastrophe losses as a result of climate change, which KBW says points to persistent rate increases.
Discussing the natural catastrophe environment specifically, KBW notes that recurring uncommon storms are materially complicating catastrophe modelling, which analysts expect to reinforce industry discipline.
Elsewhere, executives noted that aggregate retrocession capacity is extremely scarce. In fact, one executive estimated that aggregate retro capacity has declined by nearly 75% at year-end 2020, which is a reflection of lower insurance-linked security (ILS) capital stemming from higher nat cats, trapped capital, and fund redemption.
According to KBW, while it’s clear that investors in the ILS space are pulling back from loss-hit products, notably aggregate retro, a number of executives noted that catastrophe bond issuance remains strong.
At the same time, the Lloyd’s marketplace is behaving rationally, say analysts.
However, a number of participants did report hearing that some re/insurers have exited various Lloyd’s reinsurance treaties as a result of ongoing underperformance, high capital charges in catastrophe lines, and the increasingly apparent tight retro market.
