Gallagher Re’s James Vickers, Chairman International, has asserted that the July renewals were “much better managed” and “stable”, as the pricing and structural market dynamics that defined 1.1 continued, with mid-year placements catching up and aligning with prevailing market undercurrents.
Speaking to Reinsurance News alongside the release of Gallagher Re’s 1st View report, Vickers highlighted how the mid-year renewals are always a balance between catching up on previous changes or a precursor for forthcoming changes.
“This one was a catch-up with reinsurers making sure that what improvements they achieved at 1.1 and 1.4 were reflected in the mid-year renewals,” he explained.
Vickers also stated that unlike 1.1, where there was quite a big shift and a hardening of the market that was more than anticipated by buyers, allied to reinsurers still being quite sure of the shape of their portfolios and retrocession covers protections which led to a difficult and protracted renewal process, expectations for all parties “were much better managed at the mid-year renewals.”
Vickers continued, “What we did see, which was interesting, is in the last couple of weeks of renewal some reinsurers who have been expanding their capacity, reviewed what they’d written already and knowing that the mid-year 1.7 placements are the last chance to finalise their 2023 portfolios decided to actually increase their capacity at the last moment.
“Not that we hadn’t quite anticipated some increased capacity would be offered the extent it happened was very helpful on property placements.”
As Gallagher Re’s report earlier described, “Reinsurers assessed their writings from the first quarter and potential signings on 1 June accounts, the remaining renewals were effectively their final opportunity to make their business plan projections for the year. Accordingly, capacity became more readily available as reinsurers authorized increased and new lines.”
Vickers noted that “The overall trends were the same, increased retentions, reinsurers moving up the towers to middle and upper layers, volatility placements for low layers that buyers have been used to and very much like, those are now very difficult to place, or, if they are placeable, they’re at uneconomic terms that the buyers don’t want to utilise.”
“The other interesting thing is that the market conditions for reinsurers are obviously strong at the moment but unlike previous hard markets, we’ve seen no new reinsurance entities come into the market and in fact, we’re seeing the opposite, we’re seeing consolidation,” Vickers said.
As an example, he cited RenaissanceRe’s acquisition of Validus from AIG for around $3 billion.
“The market in terms of the number of players is not expanding, which would indicate perhaps, more stability,” he explained.
Discussing whether there were any areas of the market where capacity wasn’t as readily available as expected, Vickers said that capacity is available for “what reinsurers see as well-structured and well-priced programmes, so the area where capacity was not available was when programmes weren’t perceived to be well-priced or appropriately structured.”
Vickers went on, “That, certainly for some buyers, is quite difficult. Everybody talks about the big markets, the US, Europe, Japan, and Australia, but for a lot of the smaller, emerging markets, the gradual hardening of the market over the last few years has largely passed them by.
“They’ve been able to renew what they’ve already got and what they’ve enjoyed, though they’ve hit the buffers at 1.7.
“We saw that at 1.4 and we’re seeing it again that the reinsurers are now applying a uniform global approach.
“Some of these companies are facing several years of hardening all in one go, and for some of them, that means a substantial sudden structural change in their reinsurance protections and that’s very difficult for them to manage.”
In closing, Vickers was asked whether he had any thoughts on why there’s a lack of new reinsurers forming during this hard market cycle.
He told Reinsurance News, “The issue is that I think we need to see a closed year with a decent underwriting profit. Obviously, capital markets are not as flush as they were in the current economic situation.
“For sure, the first six months are looking pretty good for reinsurers, but we all know that historically losses come in the second six months, so we haven’t got a closed year.
“For the last five years, reinsurers have not been covering their weighted average cost to capital. When they prove that they’ve done it, I think we will see more capital coming in.”
Vickers concluded, “It’s a very interesting question will new capital come in just wanting to enjoy the good pure underwriting returns and they don’t want all the other factors that go with running a reinsurance company? Or do they actually fancy their chances investing in a brick-and-mortar reinsurance company?
“It’s not quite clear how that will work out, but I think that if we can close 2023 with a decent overall performance, I think that will unlock more capital which will enter the market in several different ways.”
