Gallagher Re has described the January 1st reinsurance renewals as “complex and in many cases frustrating” as tense negotiations ran “down to the wire” and reinsurers restricted capacity and pushed for tough terms and pricing.
The broker’s 1st View January reinsurance renewals report notes that the two areas of most constraint were peak-zone US property catastrophe capacity and coverage for strikes, riots & civil commotion and war.
In most other lines and regions, analysts report that buyers have largely been able to source capacity, albeit at a higher cost and in many cases changed structures with an increase in attachment points and the raising of the ‘floor’ on minimum rates on line, a key focus for many reinsurers.
Key trends included a divergence between reinsurers prepared to provide clear lead terms and capacity and others who waited for firm orders in an effort to adjust terms at the last minute.
Clients with broad trading relationships also facilitated negotiations with some reinsurers to be ‘packaged’, helping generate preferred pricing and/or increased capacity.
“The renewal process has been grueling for market participants, many of whom have not faced such a rapid change in market conditions across a single renewal season,” said James Kent, Global CEO of Gallagher Re.
“Political violence renewals have been especially demanding in terms of finding a market consensus. The differences in opinion between buyers and sellers were aggravated by the perception that there was time to reach agreement on the complex issue of the Ukraine/Russia conflict well in advance of renewals.”
However, Gallagher Re notes that the improvements in pricing and conditions particularly for property cat-related lines has led to some new capacity coming into the market.
This new capital is stemming from a combination of modest capital raising by existing reinsurers, a reallocation of internal capital by some reinsurers and notably some primary carriers with existing reinsurance operations.
Additionally, retrocession buyers were able to secure some extra liquidity from the ILS markets in the last few weeks of the renewal as lower estimates from Hurricane Ian eased some trapped collateral concerns, even if new capital has not been seen to enter this space.
In further positive signs, regulatory reforms are emerging in the US and could provide some relief for a stressed natural catastrophe market later into 2023, even if they have failed to alleviate capacity challenges at 1/1.
Also, beyond property lines the casualty treaty market is viewed as calmer and more rational than other parts of the business, and with renewals completed at terms seen as tough but fair by most buyers.
“Times of significant market change are always challenging to navigate but we have seen a significant difference in the ways that individual reinsurers have reacted despite a widespread stated ambition to grow premium volumes in what is being viewed as the best treaty underwriting terms and conditions for a generation,” Kent continued.
“Some have reached the end of the renewal season with reputations enhanced, exercising a firm, fair, transparent approach based on a commitment to their own view of pricing adequacy. Others who have acted less deftly may find sustaining long term client relationships more challenging, especially once capital and competition rebuild in the global reinsurance market.”
