Reinsurance News

Property a market where reinsurers are firmly in control: JMP Securities

22nd December 2022 - Author: Kane Wells

Following conversations with re/insurers and brokers in London ahead of the January renewals, analysts at JMP Securities have suggested the property market feels like a market where the reinsurers are firmly in control, and that this likely has legs beyond just the 2023 renewals.

JMP SecuritesAccording to the analysts, through the discussions, it quickly became clear that supply and demand dislocations created by the combination of recent difficult results, sharp increases in inflation, poor equity and bond market performance, as well as insurers’/reinsurers’ desires to reduce earnings volatility, have resulted in a property reinsurance market that is undergoing a structural reset and is in true hard market territory for the first time in over two decades.

JMP notes that as with any renewal season, pricing and attachment levels were part of the conversations, though they took a back seat to the discussion surrounding the availability of capacity and changes in terms and conditions.

The analysts write, “In terms of pricing, our conversations pointed to anywhere from 40% to 70% rate increases for property cat, which is the segment of the market that is in keen focus at the moment.”

Regarding attachment levels, JMP observes that Europe is coalescing around a 1-in-5-year event level, up from something closer to 1-in-2 or 1-in-3 in recent years.

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Meanwhile, in the US, the market seems to be centred around a 1-in-10-year event level, which could prove to be a substantial (100% or more) increase in attachment level for some, while others that “already had more skin in the game” would see a much less severe change.

JMP’s analysts add, “All that said, the most important changes appear to be in terms and conditions, the most significant of which include moving to named perils coverage from all perils (notably in the U.S.), significantly reducing hours clauses and cyber/terror/SRCC (strike, riot, civil commotion) exclusions/ limitations.”

The analysts suggest that the shift toward named perils is the most consequential, as JMP does not believe the reinsurance market was specifically/accurately pricing for certain perils such as wildfire or freeze, which might now find themselves uncovered in many programs unless the cedant specifically buys cover for the peril.

JMP concludes, “All in, it is clear that reinsurance is transitioning back toward protecting cedants’ capital rather than earnings, which had been the case in recent years.”

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