Reinsurance News

Lloyd’s underwriters expect property cat rate rises to persist: Peel Hunt

12th January 2022 - Author: Luke Gallin

After rising by around 10% at the January reinsurance renewals, property catastrophe rates are expected to gain further momentum in 2022 amid a reduction in capacity, reports Peel Hunt following discussions with underwriters from the Lloyd’s market.

industry-growth-graphPeel Hunt recently held its Lloyd’s Tour, during which most of the underwriters it spoke with agreed with the view of a reinsurance broker that property cat reinsurance rates increased by 9-11% at the Jan 1st, 2022, renewals.

This is in line with the 9% rise in the Howden global risk-adjusted property-catastrophe reinsurance rates-on-line Index, and the Guy Carpenter global property catastrophe rate-on-line index increase of 10.8%.

The severe flooding in parts of Europe in July, notably in Germany, meant that for the first time in some years, European reinsurers held firm and pushed for rate rises alongside tighter terms & conditions.

It’s been widely reported that the 1/1 renewals were late with rates improving cautiously and rising more towards to the end. This, says Peel Hunt, is telling.

Tremor - The modern way to place reinsurance

Interestingly, one underwriter argued that although rates appeared to rise, on a risk-adjusted basis, considering the greater frequency of property cat losses in recent years and the general rise in inflation, “rates had probably declined during the period.”

However, Peel Hunt states that the underwriters and broker it spoke with “agreed that rates would continue to firm as the year progressed, particularly in the US, as rate adequacy for property catastrophe risks had not yet been achieved.”

The upward pressure on rates in the property cat market is also being driven by a restricted supply of capital after recent loss years, and this occurred at 1/1 despite increase demand from buyers.

Challenges in retrocession remain and it’s become clear that January 1st was a difficult renewals for the market.

The retro market squeeze, which one underwriter told Peel Hunt is structural, is leading to reinsurers retaining more risk and fuels pressure from rating/modelling firms on reinsurers to hold more capital, and Peel Hunt analysts feels that this is cascading down the risk vertical.

“In response, Reinsurers lowered their exposure to secondary perils in particular by tightening terms & conditions and pressured buyers of reinsurance protection to increase their retentions,” say analysts.

According to Peel Hunt, the reduction in property cat exposure was reallocated to non-cat classes of business as carriers looked for improved diversification, lower volatility around earnings, and access to primary rates.

“As such, we believe reinsurer’s risk appetite is flat to down post the renewals as the industry takes a step back and focuses on improving underlying margins and returns on capital.”

Print Friendly, PDF & Email

Recent Reinsurance News