Demand for property reinsurance protection is expected to increase in 2023 at multiples of recent years, but despite numerous reinsurers announcing some form of retreat from the property catastrophe space, Guy Carpenter is confident the market will find a way to provide solutions.
Speaking yesterday during a media briefing held by reinsurance broker Guy Carpenter ahead of the 2022 meeting of the industry in Monte Carlo, Lara Mowery, Global Head of Distribution at the firm, discussed the challenged property market.
“A convergence of issues that have both positive and negative impacts on property portfolios are at the forefront of today’s market,” she explained. “Last year during this presentation, we discussed how abundant capacity helped to foster an overall environment of stability for property renewals. This, however, has not been the case as we moved further into 2022.”
Elevated losses from catastrophes, notably secondary perils, has resulted in poor underwriting results for some, and combined with the inflationary landscape, this led to a surge in demand for protection.
However, a number of providers of reinsurance capacity have opted to pull-back from the property cat space in light of recent loss trends, notably for lower layers of programmes. In Florida, for example, which continues to navigate various other issues such as social inflation and litigation trends, this has contributed to an extremely difficult situation.
The reality is that some reinsurers are looking to reduce volatility by cutting their appetite for loss impacted regions. As demand increased through 2022 and sellers adopted various strategies around nat cat risk, with some decreasing deployed capacity, others reducing appetite for growth, and others confirming a significant pull-back from the space, the mid-year renewals proved a real challenge for some buyers.
With the hurricane season yet to peak, it’s uncertain exactly how appetite will be for nat cat risk at the January 1st, 2023, reinsurance renewals. But what does seem clear, is that demand for protection is only going one way.
“We also expect demand to increase as cedents evaluate the effect of increasing values themselves, relative to their own risk tolerances,” said Mowery. “While in the past we may have seen the industry flex to accommodate 3% – 5% growth in a given year without any strain, the 2023 ask of property reinsurers will be multiples of that.”
“It comes at a time when several reinsurers have publicly pulled back from providing catastrophe capacity. On the surface, this may paint a grim picture for 2023 property renewals, but we are confident the industry will come together to provide solutions,” she added.
Providing evidence for this optimistic view of the upcoming property renewals, Mowery explained that Guy Carpenter commenced discussions about just this topic shortly after the July renewals.
“We asked, how do we ensure adequate capacity in the face of this level of market growth? The answers are still evolving and will continue to develop as we move towards January 1, but there are some key themes.
“There are a number of reinsurers planning for growth in their property portfolios, some of it significant. Driving this momentum is the reality that the market is shifting based on evidence we’ve seen at mid-year. Market adjustments continue, recognizing current conditions, we would say that now is the time to lean into the market, many are doing just that,” said Mowery.
Citing a recent S&P report, Mowery noted that while some have certainly pulled back from the space, half of the top 21 global reinsurers did increase their nat cat exposures in 2022.
It’s a valid point, as the likes of Swiss Re, for example, confirmed earlier in the year its intention to grow in nat cat further, while other large players also showed their commitment to the space through growth.
“Stress markets have also generated startup operations, and we’re aware of several projects in various stages of progression,” added Mowery.
“Reinsurers ability to drive their growth plans forward requires validating that future portfolios will be profitable. And this does mean continued focus on coverage and price adequacy. Modified product offerings will be a factor as more exposed lower layers and aggregates come under pressure.
“It may be more beneficial for a cedent wanting expanded limit to shift the amount of capital in terms of bottom-end capacity to gain more coverage overall,” she said.
