During an “undramatic” and “balanced” April 1st, 2022, reinsurance renewals season, there was widespread discussion about inflation as reinsurers were keen to understand its impact on cedants’ portfolios, reports Gallagher Re.
The reinsurance broker’s latest April 1st View report was released this morning, revealing modest reinsurance rate increases characterised by an orderly renewals, which was heavily focused on Japanese business.
According to Gallagher Re, inflation was a key topic at 1/4 as sellers of protection looked to assess its impact on ceding firms’ portfolios to then reflect this in their pricing models.
As a result, it was a simpler renewals for reinsurers that were able to show that their own underwriting takes inflationary impacts into consideration.
“The ongoing supply-chain squeeze, the inevitable but still surprising return of inflation, and especially the shocking challenges presented by Russia’s invasion of Ukraine were discussed at every major renewal negotiation. Fortunately, none of these topics prevented a basically orderly renewal from occurring, mainly in line with everyone’s expectations,” said James Kent, Global Chief Executive Officer (CEO) of Gallagher Re.
Amid Russian’s invasion of Ukraine, but also the ongoing trend of reinsurers seeking improved clarity of coverage after COVID-19, at April 1st, the market standard Sanction Limitation & Exclusion Clause, LMA 3100, was adopted almost universally, says Gallagher Re.
On pricing, the broker reports modest reinsurance rate increases at 1/4, with loss-free property catastrophe treaty rates showing single digit increases similar to those seen at 1/1, on a risk-adjusted basis.
Property per risk business witnessed a much wider range of price rises following the trend seen in other recent renewals. While casualty rates were flat overall, says the reinsurance broker.
“The 1.4 renewal was for the most part undramatic and orderly. Insurers who were able to show the quality of their underlying portfolios were rewarded with a favourable renewal terms. Capacity was not abundant, but nor was it insufficient. The equilibrium which has been building over the past 18 months appeared to arrive during this balanced renewal,” said Kent.
On the insurance-linked securities (ILS) side, Gallagher Re says that both collateralised reinsurance and sidecars remained relatively stagnant, while catastrophe bond issuance was strong in Q1 2022 on the back of a record-breaking 2021.
As an example, Gallagher Re notes that weighted average risk premiums for US wind-exposed risks increased by 0.2 points to 6.7%, which is in line with a rise in expected loss to 3%.
