Capacity constraints from the insurance-linked securities (ILS) market resulted in a challenging renewal for the non-marine retrocessional market, according to Willis Re, the reinsurance arm of global insurance brokerage Willis Towers Watson.
Analysts noted that ILS capacity has been a driving force of retro capacity in recent years, but is now under pressure following several years of significant loss activity.
New fund raising has proved difficult for existing ILS managers and even more so for new ventures, with negative investor sentiment and poor results limiting new capital influx.
Investors dealt with new catastrophes in 2019 as Hurricane Dorian and Typhoons Faxai and Hagibis put further strain on pricing and further trapped collateralised capacity.
This dynamic was also exacerbated by another year of loss deterioration on prior year events such as Hurricane Irma, Typhoon Jebi, and Hurricane Michael.
Willis Re observed clear pricing differentiation between traditional occurrence and aggregate structures at the January 2020 renewals, with the latter driving the upper end of rate movements.
Several buyers also switched some or all their purchases from aggregate to occurrence structures, it said, as reinsurers’ appetite for aggregate excess of loss changed significantly with regards to both pricing and attachment level.
Furthermore, reinsurers continued to differentiate between clients based on past performance, while dislocation between underlying reinsurance pricing and retrocession pricing continued to widen.
Overall, Willis Re noted a divergent and late January renewal season which saw some considerable price increases in certain lines of business.
