Analysts at Gallagher Re have warned that many of the hard-fought positive outcomes for reinsurers at the recent January 1st renewals may have come at the expense of damaged client relationships.
In its 1st View January reinsurance renewals report, the broker noted that the recent 1/1 period was “very tense” with negotiations running “very late” as reinsurers generally refused to show flexibility.
But while this may have resulted in improved pricing and terms for reinsurers, Gallagher Re says it may also have “reduced confidence from some buyers in the reinsurance product.”
European property was viewed as the most strained line of business at the renewal, which was pressured by Hurricane Ian, as well as high inflation and growing demand for catastrophe capacity.
Through negotiations in November and December, Gallagher Re reports that European clients ended up mostly stepping up to reinsurers requests, issuing market led firm order terms, and aiming at full syndication.
“Arguably the European property market re-set in two months some ten years of downwards cycle,” analysts commented.
European cat and associated placements did eventually come together in a late rush during December after weeks of delays, which Gallagher Re says resulted from a combination of tactical delays by some reinsurers as well as an inability to commit to renewals by others.
Overall, this approach shifted the European market shares of the different global reinsurance markets to a much greater degree than during previous renewals with many traditional European markets gaining from this move.
Despite inflation driven cash increases on programmes that often already represented a double-digit percentage increase, most cat firm order terms – even for loss free covers – were up by at least a further mid +20%s to low +40%s risk-adjusted uplift for contracts covering key perils.
“Accepting to lose existing relationships, reinsurers were determined to force through these changes motivated by their own internal pressures of poor past results and restricted capacity for Euro wind often influenced by limited availability of Retro coverage,” Gallagher Re observed, adding: “other reinsurers were willing to step up but only at a price.”
Reinsurer also challenged low attachment levels and moved on an event basis closer towards the 1 in 10 years for key perils, in some cases achieving slightly lower attachments for combined perils layers.
However, there was little or no flexibility shown by reinsurers towards these benchmarks with markets holding firm their positions to the end and often ‘forcing’ programme restructurings, analysts say.
Nevertheless, fears of limited capacity for key perils such as European wind and inability of reinsurers to satisfy additional capacity requests didn’t materialise as numerous reinsurers were willing to expand their deployed capacity, but only at the right price for new top layer capacity and often with restricted coverage.
Likewise, an early renewal push by some reinsurers to limit cat coverage to named perils also didn’t materialise, but constituted a significant road-block in the early weeks of the renewals process.