International insurance broker Howden has reported that a multitude of factors coalesced at the January 1, 2021 renewals to drive “the sharpest price changes in recent memory.”
According to Howden, lower investment yields, higher loss cost trends, another above-average loss year, concerns over climate change and general risk aversion were among the primary concerns for re/insurers at 1/1.
These factors helped rates to accelerate across most commercial lines in 2020, despite businesses facing significant, even existential, financial pressures due to COVID-19.
Against this backdrop, Howden also noted that reinsurers were mostly disciplined and discerning at the renewals, portending similar discipline in the near-term.
“A multitude of factors informed this year’s (re)insurance renewals,” said David Flandro, Managing Director, HX Analytics. “Despite the asset shock that occurred immediately post-lockdown and full-year underwriting losses of USD 100 billion or more, capitalisation has proved resilient.”
“Incumbents and new players raised close to USD 20 billion of capital in 2020 for all purposes, with more to come this year,” Flandro continued.
“This is therefore not a universally dislocated market; differentiated risk management strategies and advice can still unlock access to capacity, even if the landscape has undeniably become more challenging.”
Howden’s Property-Catastrophe Rate-on-Line Index rose by 6% at 1 January 2021, which was higher than the flat outcome of 2020, and the biggest year-over-year increase in over a decade.
COVID-19 loss experience, along with yet another hyperactive natural catastrophe year, were seen as the key inflating drivers.
Programmes in North America saw the largest average rate-on-line increase at 8.5%, although pricing pressure was more subdued outside the United States.
Rates in Europe also reached a turning point as rates grew in the low-to-mid-single digit range.
Another year of constrained capacity in the retrocession market saw rates rise by 13%, as four consecutive years of price increases drove cost of retrocession protection to levels last recorded in 2012/13.
“Whilst the pricing environment may be supportive for carriers in 2021, this should not translate into a degree of risk aversion where underwriters accept rate but shy away from new risks or new business,” said José Manuel González, CEO, Howden Broking Group.
“The global risk landscape is changing like never before. Carriers and brokers have always served clients best by learning from shock events and 2020 is surely a year rich in its lessons. There is much to draw from: COVID-19 has brought the growing ‘intangibility’ of risk into focus, a trend that is only going to accelerate as new technologies continue to redefine risk characteristics,” the Howden CEO continued.
“Irrespective of what happens to the market cycle in 2021, the (re)insurance market must seize the opportunity and focus on doing what it has done so well several times over; innovate and develop creative solutions for the changing needs of our clients.”