Reinsurance News

Mixed outcomes for reinsurers at “challenging” Jan 1 renewals: Gallagher Re

4th January 2022 - Author: Matt Sheehan

Analysts at Gallagher Re have reported that the January 1 reinsurance renewals concluded with a “wide range of outcomes” as a push for improved pricing resulted in a tense round of negotiations.

Reinsurance renewalsThe broker noted that most reinsurers were determined to seek further price increases at 1/1 after hopes of a more profitable 2021 were dashed by another year of heavy catastrophe losses.

But the industry remained nonetheless well-capitalised, despite some shortages on the retrocession side, which led to much variation in negotiations.

Negotiations concluded very late and property cat rating movements were seen to deviate greatly by territory and client, with large increases being seen on loss-hit programmes.

As expected, aggregate and loss frequency protections proved very demanding with reinsurers trying to move capacity away from these covers resulting in ceding companies having to use the leverage of other more attractive treaties to achieve completion.

AmericanAg - Global Reinsurance Solutions

Gallagher Re also observed that the renewals proved very difficult for retrocession buyers, who were faced with a reduction in aggregate capacity as ILS funds found themselves with increases in trapped capital and a diminishing investor base.

Collateralized occurrence and sidecar retrocession capacity was consequently in short supply, leading to some reinsurers pulling back catastrophe capacity for primary buyers.

“The end of a more challenging renewal season than most has, on balance, provided another rational outcome,” said James Kent, Global CEO of Gallagher Re.

“Reinsurers have managed to achieve further improvements in pricing to build on the increases of the past 18 months, particularly on accounts ceding losses, but may be wondering if they have over-stressed some long-term client relationships,” he continued.

“Many buyers have managed to secure sufficient capacity knowing the continued improvement in the underlying business has resulted in portfolios that are better balanced supported by largely consistent reinsurance structures to manage volatility and net lines.”

Analysts observed that pricing pressure was not consistent across the market at January 1, with quota share placements on non-cat lines being keenly sought.

Quota share placements for US professional lines and casualty in particular, along with some other global specialty lines, saw buyers achieving higher commissions on the back of continued rate increases for many primary lines of business, some reduced cession percentages, and heightened capacity supply.

Also noteworthy is the fact that Gallagher Re sees the market as having moved on from the Covid-19 claims of 2020, as primary companies’ claims reserves have stabilised and reinsurance recoveries have started to move through the market with an increasing number being settled.

Aside from natural catastrophe losses, discussion around loss cost inflation featured widely across both short and long tail classes.

For long tail lines, the pricing of excess of loss covers was dominated by debates around underlying cost inflation and wider social inflation, while for short tail lines inflationary concerns centred around constricted supply chains and labour supply.

Print Friendly, PDF & Email

Recent Reinsurance News