The structural shift and reset in relationships between insurers and reinsurers at the January 1st, 2023, reinsurance renewals, has created a more stable, long-term equilibrium, and has resulted in one of the most pivotable 1/1 renewals in the history of RenaissanceRe, according to the firm’s President and Chief Executive Officer (CEO), Kevin O’Donnell.
“This was one of the most profound renewals, I think, RenRe has ever had,” said O’Donnell, speaking yesterday on an earnings call following the release of the Bermuda-based reinsurer’s fourth quarter and full-year 2022 financial results. “Most notably, this includes a step change in property reinsurance pricing.”
According to O’Donnell, these changes drove a “fundamental and necessary reset in the relationship between insurers and reinsurers, promising more appropriate risk-adjusted returns to investors, while ensuring customers sustainable access to reliable, high-quality capacity.”
The CEO asserted that this structural shift in the marketplace constitutes a stabler long-term equilibrium, that will ultimately protect the interests of both investors and customers.
“This renewal marks an important inflection point for our business,” continued O’Donnell.
Expanding on this, O’Donnell noted that the property renewal was very late with many deals not found until late December, and some instances early January.
The company anticipated a significant supply / demand balance heading into the property cat renewals that it expected to drive material rate increases of as much as 100%.
“As the renewal progressed, cedents understood that the market would remain disciplined on rate. They responded by increasing retentions, restricting coverage, and restructuring programmes in order to control premium budgets.
“These changes benefited us in particular, as our underwriting expertise and flexible capital allowed us to execute in a structurally shifted market, to increase profit, reduce risk, and better diversify our portfolio,” said O’Donnell.
With buyers unwilling to pay additional rate required, the rise in demand expected by RenRe was retained by insurers, although O’Donnell expects that, overtime, this risk will return to the reinsurance market as macroeconomic forces continue to drive overall risk in the system.
At 1/1, explained O’Donnell, RenRe set itself very aggressive targets, which included growing its property catastrophe portfolio, reducing risk at the low-end, holding PMLs flat, and expanding its footprint with the addition of third-party capital.
“We will always have the most efficient capital to assume property cat risk, so it should ultimately sit with us,” continued O’Donnell.
He went on to say that the reinsurer is very pleased with the property portfolio that it wrote at January 1st, when, as expected, it renewed business at significantly increased rates and tightened terms and conditions.
“Additionally, we increased allocation to property cat as it became increasingly profitable relative to other property,” said O’Donnell, adding that the firm is growing in property cat substantially.
“The January 1 renewals is more focused on retro and international business, while the most dislocated part of the property market, US risk, mostly renews at mid-year. Consequently, we expect many opportunities to deploy additional capacity in property over the next six months,” said O’Donnell.
In fact, about 50% of the firm’s U.S. exposed property cat limit is yet to be renewed, and as O’Donnell expects that what the reinsurer achieved at 1/1 will persist through the rest of 2023, he feels optimistic from a property cat perspective.
“The other thing I would say is, we allocated increasing capacity to our property cat portfolio, within our overall property book, by adding capacity from the other property portfolio to the property cat book. So, we will achieve substantial growth in the property cat portfolio,” he said.